House prices fall to their lowest level in two years

House prices in Scotland have dropped for the fourth successive month to their lowest level in two years, according to a new report.

In January, the average cost of a house in Scotland was £145,607 – compared with £148,292 in February 2011, a drop of 1.9 per cent.

Meanwhile, separate figures from the Council of Mortgage Lenders (CML) showed that the number of first-time buyers jumped 23 per cent in January, but warned that the market is in for a “bumpy” ride this year.

Some 13,200 mortgage loans were taken out by first-time buyers in January, worth a total of £1.6 billion, a 23 per cent rise both in the number of loans and their value.

The number of home movers also increased year-on-year, with 22,400 loans made to this sector of the market in January, worth £3.6 billion, a 20 per cent rise in volume and a 16 per cent increase in value.

“The year-on-year rise in house-purchase lending suggests that lending levels are generally rising, although we expect the trajectory to be bumpy rather than smooth this year,” said Paul Smee, director general of the CML.

The first-time buyer proportion of the market slumped back to a three-year low last autumn, but estate agents and lenders have reported a recent surge in activity as the current two-year stamp duty concession for this sector of the market, which raises the threshold for first-time buyers from £125,000 to £250,000, is due to end on 24 March. But Adrian Knott, director of independent mortgage broker Adrian Knott Partnership, said the fall in interest-only loans was still causing problems for first-time buyers. He said: “By taking the axe to interest-only loans, lenders are cutting off their noses to spite their face.”

The latest LSL Acad Scotland House Price Index said January’s 0.9 per cent fall from the previous month left property prices at a level last seen in December 2009. The study also revealed an 8 per cent drop in the value of flats, reflecting a slow first-time buyer market.

Property experts said that the problem was being fuelled by the difficulty people were finding in securing a mortgage.

However, despite the drop in prices, the report also found transactions in January 2012 were up 7 per cent on January 2011. “Prices spiralled downward in January,” said Gordon Fowlis, regional managing director of Your Move. “House prices usually fall over the winter months as would-be buyers nurse their finances back to health after Christmas.

“But this is bad news. That’s not to say people aren’t still keen to move home.

“The root of the problem is how hard it is to get a mortgage. Banks just aren’t lending.”

In the past year, East Lothian saw the biggest drop in house prices, which fell by 9.9 per cent from £204,223 in January 2011 to £183,963 in January 2012.

The biggest increase was in Orkney, where prices rose 16.9 per cent from £115,034 to £134,460.