Scots to escape worst as UK house prices set to fall 7%

But the outlook for the Scottish housing market is better than that for England and Wales, experts believe.

The organisation's prediction of a 7 per cent fall compared with the same quarter in 2007 – its gloomiest forecast for several years – revised its previous forecast, in October last year, of a 1 per cent rise in 2008.

It also said gross mortgage lending would fall to 285 billion this year, down 21 per cent year-on-year and short of the 340bn it had previously expected.

However, the housing market decline in Scotland will be less dramatic, according to Martin Ellis, chief economist at HBOS. He said: "Scotland is going to outperform the rest of the UK in 2008 because affordability is less stretched than elsewhere.

"But because it is subject to the same difficult conditions, the market in Scotland is slowing down and we do not discount the possibility of modest house-price falls later this year."

And Kennedy Foster, the CML's policy consultant for Scotland, said all the indicators were that Scottish house prices were unlikely to fall as much as those south of the Border.

"The evidence from Lloyds TSB last week was that prices here have risen, suggesting the market in Scotland is holding up better.

"However, while we would not expect to see a 7 per cent fall, the impact of the credit crunch in terms of mortgage product availability is equally applied here and we may have a gradual slowdown."

The CML's latest figures also showed an 8 per cent decline in gross mortgage lending in April compared with the corresponding month last year, while for March and April combined, lending was down 16 per cent from 2007 levels.

"In the wake of the credit crunch, 2008 will be remembered as a very weak year in the housing market," said Michael Coogan, director general of the CML. "The market is still very uncertain, but lenders are working hard to ensure that borrowers coming off fixed rates remain on track and that arrears and repossessions are minimised."

The CML said it had seen no reason to change last October's repossessions forecast of 45,000. But this was optimistic, said Eamonn Rice, chief executive of Edinburgh-based online mortgage firm mform. "Lenders are seeing repossessions as the first rather than the last resort because, with margins under pressure, repossessions are a commercial judgment."