Credit crunch hits city house prices

THE biggest sign of a housing market slump hitting Edinburgh emerged today as new figures showed prices rising at their lowest rate for 15 years.

The price of the average home has increased at less than half the rate of inflation – or just 1.2 per cent – over the last three months, while some areas of the Capital have seen up to 15,000 wiped off the value of two-bedroom flats.

The worldwide credit crunch has been blamed for the figures, with first-time buyers finding it increasingly difficult to secure mortgages.

But despite the bleak report, experts today insisted that there was no fear of a long-term housing crash hitting the Capital.

Today's figures from the Edinburgh Solicitors Property Centre (ESPC) show the number of homes sold in the city also dropped by nearly seven per cent to 1606 – or just over 17 homes a day – compared to 21 a day for the same period only two years ago.

Overall, it is the slowest rate of price inflation recorded in the Capital since the closing stages of the last UK recession in 1993.

David Marshall, the ESPC's business analyst, said: "The situation in the early 1990s was a full recession and people were losing their jobs. That is not the case at present, despite people losing credit.

"The risks to housing are far less than they were in the 1990s.

"People should not expect that this will only last six months or so then return to growth of ten per cent and above, but we do expect growth to be around two, three or four per cent for the year."

The figures show that in the last quarter, two-bedroom flats in Marchmont and Bruntsfield have plummeted in value by more than five per cent to 260,078 – the first price drop in a sample area since 2005.

Mr Marshall said areas with a large number of flats that have risen substantially in price in recent years are most likely to suffer as lenders move to reduce the amount of credit available to buyers. Instead, buyers are increasingly moving towards areas seen as more affordable, such as Gorgie and Dalry, where the price of one-bedroom flats increased by nine per cent to 127,213.

In the city centre, the average price pushed ahead by 3.3 per cent to 249,665, while the average home across the ESPC area in the first quarter was 210,123.

Higher sales volumes have been seen in the family homes market, where there continues to be a shortage of supply, keeping price inflation in the suburbs at between nine and 14 per cent. Yet even those figures are expected to fall to around three per cent for the full year.

The new-build market has also suffered as a result of the credit crunch, with a perceived over- supply of flats in areas like the Waterfront.

Sarah Robson, a spokeswoman for the Council of Mortgage Lenders, whose members include banks and building societies, said the amount lenders were prepared to offer had dropped to its lowest level since 2004.

She said: "It shows the lending criteria is being tightened. Without a substantial deposit it will be difficult for first-time buyers." Today's figures come a day after it emerged the cost of renting in Edinburgh had soared 20 per cent.

Councillor Paul Edie, the city's housing leader, said: "The bottom line is we do not have enough socially rented accommodation for people to tap into.

"The housing market will go up and down but if people cannot afford to buy they will have to rent. First-time owners may not want to sell either, and if they hold off selling there will be fewer properties coming on to the market, and they could even get negative equity."