Housing market revival grinds to a halt

A REVIVAL in the Scottish housing market has ground to a halt according to new figures released today, fuelling fears that Scotland could be sliding back into recession.

• Professor Donald MacRae

The quarterly Lloyds TSB Scottish House Price Monitor shows that the average house dropped in price by almost 3 per cent in the three months to 31 July, at 159,217.

An impressive 6 per cent leap in the average house price in the three months up to January had led to hopes that a revitalised property market could help lead Scotland out of the economic downturn.

However, experts now fear that the property market is again stagnating, with house prices increasing by less than one per cent in the last year according to Lloyds.

Only Aberdeen and Dundee have bucked the trend, with the two cities seeing large rises in the price of the average domestic property.

Professor Donald MacRae, chief economist at Lloyds Banking Group Scotland, said: "The rise in Scottish house prices identified at the end of 2009 and spring of this year has stopped and has partially reversed. It is clear that recovery from recession in the Scottish housing market has paused."

Highlighting concerns about the wider economy, Prof MacRae added: "The Scottish economy exited recession at the end of last year with growth of 0.3 per cent in the last quarter. Since then growth has stalled with economic output unchanged in quarter one of this year."

Prof MacRae also claimed that hopes of a retail led recovery from recession have also failed to materialise, with Scots shoppers still reluctant to spend.

He said: "Although positive, consumer confidence is still well below pre-recession levels, retail sales are increasing at an annual rate of 0.8 per cent in July, indicating weak growth in the economy."

The current state of the housing market has prompted a call for the banks to increase lending to first-time buyers trying to get on to the property ladder. Wilson Hunter, the senior partner of residential firm Hunters Residential, said: "The property market has been one of the main bastions of the economy, and they should be focusing on the lower end of the market, and trying to make some money available for those that want to get on the property ladder."

Despite the gloomy outlook from Lloyds, property experts last night insisted that the housing market is still improving.

The Edinburgh Solicitors Property Centre (ESPC) revealed that their own figures showed a large rise in average house prices during the last year.

Spokesman Neil Harrison said: "Our figures show an 11 per cent increase in the average house price in July, compared with the previous year.

"This has been driven by the demand for larger family homes, where mortgages are not such an issue as they are for entry level properties. Because we have seen a rise in larger homes being sold, this has driven up the average price.

"We had expected the market to settle back down after the increases we saw towards the end of last year, but we are still seeing high levels of demand for traditional, family homes."

According to the Lloyds monitor, there continues to be wide regional variations in the property market.

Glasgow has reported the largest decline in average house prices, down 6.7 per cent on last year. Edinburgh was down 2.2 per cent, according to Lloyds, while the rest of south east Scotland suffered a 2.9 per cent reduction. In Central Scotland, including Fife, rural Tayside and Perthshire, the average price was down by 0.1 per cent. The north and the south west recorded increases of less than one per cent.

However, the north east bucked the trend, with Aberdeen enjoying an 11 per cent increase and Dundee a 7.7 per cent rise in the price of the average domestic property.

Bob Collier, chief executive of the Aberdeen and Grampian Chamber of Commerce, said demand for property in the city was still high, despite the recession. He added: "There has been negligible building of new homes in the city, so property is still at a premium. In general, the economy of the city has held its own and is faring slightly better than the rest of the country."

Despite the pause in house-price growth, the volume of house sales has increased.

Purchases grew by a fifth over May, June and July compared to the same quarter last year, the house price monitor showed. A similar increase was recorded compared to the first three months of this year.

Earlier this month the Registers of Scotland showed that house sales across the country increased by 17.1 per cent, alongside a rise in the average house price, which went up by 5.3 per cent to 153,248 compared with the same quarter in 2009.

The Nationwide said UK house prices fell by 0.5 per cent in July. House prices are now just 6.6 per cent higher than a year ago, compared with 8.7 per cent in June and 10.5 per cent in April, according to the Nationwide.

The Halifax house price index also fell in June, for the third successive month. Prices dropped by 0.6 per cent in June from levels in May – the fourth decline in the past five months, said the Halifax, owned by Lloyds Banking Group.