Light at the end of the property tunnel

EXPERTS have heralded the end of the property slump in Scotland as new figures showed a year-on-year rise in house prices for the first time in 19 months.

Property prices across the UK for October were 2 per cent higher than last year – making the average price of a UK property 162,038.

However, this is still 13.1 per cent below the peak in October 2007, when the average property was worth 186,044.

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Property experts in Scotland said the report by Nationwide mirrored their own experiences of the housing market over recent months, with sales picking up and a return to growth.

They highlighted that new buyers had been attracted by more affordable prices – up to 15 per cent below peak value. Historically low interest rates were making mortgages attractive and first-time buyers were being helped by a stamp duty holiday for properties up to 175,000.

However, some analysts warned the figures marked a false dawn – and predicted that the impacts of the recession would bring further falls in property values in the coming year, of up to 5 per cent.

Jamie Macnab, head of Scottish residential property for Savills, said: "Everything is now heading the right way. Where we were this time last year was terrifying and we didn't know what was going to happen.

"We thought we could face something absolutely horrible. Now we are pulling out of it and it's all very positive."

Mr Macnab said "prime" areas, particularly in Edinburgh, were already showing signs of returning to normal.

"Prime Edinburgh is returning to normal, but the remoter areas are still experiencing a bit of a slump," he said.

"Edinburgh is at the hub of what goes on in Scotland. If it starts to pick up in Edinburgh then other areas will follow."

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Eventually, he believes prices will return to the high levels seen earlier this decade – due to an inherent lack of supply to meet demand.

"I think substantial price rises will come again. In two to three years we will probably get back to 10 per cent growth per year."

The year-on-year rise in house prices revealed by Nationwide's report has followed a strong upward momentum in property values since February.

However, the month-on-month rise for October, at 0.4 per cent, was well below the average 1.2 per cent monthly gain of the last five months. July and August saw particularly strong increases in property values, of 1.4 per cent, which dropped to 0.9 per cent in September.

Martin Gahbauer, Nationwide's chief economist, said this "moderation" in the rate of house price inflation was to be expected as the very strong monthly increases seen over the summer were unlikely to be sustainable in the long run.

"Although too early to tell for sure, it may also reflect a more natural level of stock available for sale coming to the market, alleviating some of the extreme shortages of property on the market seen during most of this year," he said.

He said a return to buoyant levels earlier in the decade were "difficult to imagine".

"On the one hand, a deeper and longer recession implies higher levels of unemployment and a longer period of subdued wages, both of which will act as constraints on the housing market's recovery," he said.

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"On the other hand, the figures mean that interest rates are likely to remain at or near their current record lows for well into next year.

"As a result, mortgage affordability will remain relatively favourable for both new and existing borrowers. This should limit the number of distressed sales and cushion the negative impact of labour market weakness on housing demand."

Alasdair Seaton, partner at DM Hall Chartered Surveyors in Dunfermline, said he was confident prices had stabilised. He compared the housing market to a juggernaut stopping at a red light as it entered a slump and then speeding up as prices rose. "I believe we have just pulled away from the red light," he said.

Edinburgh Solicitors' Property Centre business analyst David Marshall said trends in Edinburgh were broadly similar to those for the UK.

"We have seen a very small annual rise in the average house price over the last couple of months in Edinburgh," he said.

"Since February prices have been slowly inching upwards, at a very modest rate."

He welcomed the slowing in month-on-month property values. "For the long-term health of the market this is really what we should be looking for," he said. "We don't necessarily want to see inflation returning to 1.5 per cent per month because clearly these rates of growth would not be sustainable." He predicted that there would now be a "prolonged period of stability", where prices remain "more or less where they are currently".

National Association of Estate Agents chief executive, Peter Bolton King, agreed:

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"As sellers come on to the market we may see a levelling out of house prices, but we will also see a far firmer foundation for a real market recovery."

However, other analysts warned the bleak outlook for jobs and wages during the recession could cause house prices to fall again.

Howard Archer, chief UK and European economist at IHS Global Insight, predicted that prices will be at least 5 per cent lower at the end of 2010 compared to now. He warned that the fundamentals for the housing market were unfavourable – with housing market activity still at a low level compared to normal, unemployment high, earnings growth low and house price/earnings ratios moving back up.

If more properties come on to the market, a relapse will be "even more likely" he said – because a lack of supply has been driving price increases.

"While the Nationwide data indicates that house prices are still on an upward track from their February low, October's significantly reduced month-on-month increase fuels our suspicion that the recent rally in house prices is unsustainable," he said.

Seema Shah, a property economist at Capital Economics, said: "The upturn in house prices already appears to be losing momentum.

"There are tentative signs that the shortage of property for sale, which has been driving up prices in recent months, is beginning to ease.

"With the housing market still overvalued, activity is still at levels which would normally result in falling prices, and unemployment still rising, we expect house price falls to resume in 2010."

'I was wondering how far it'd fallen, so it's a relief'

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ANDY O'Brien had not dared to hope that his three-bedroom Edinburgh house had risen in value over the past two years.

However, despite buying just before the property market collapsed, he discovered yesterday that the terraced house in Craigentinny was now worth 10,000 more than the 260,000 he paid for it.

Mr O'Brien, who lives in the property with his wife Xanthe and their two young daughters, was buoyed by the news.

"I was wondering how far it had fallen, so it's a relief," he said.

"We are quite happy that it hasn't lost 30,000. It's good to hear the money is still in the property.

"In some ways I'm not surprised, because people have been saying Edinburgh is holding up better than other areas."

The family were living in a two-bedroom flat in Newington and had been looking for a larger home for two years when they found their current property.

Fortunately, they managed to sell their previous flat when the market was at its height. A similar neighbouring flat is now on the market for about 30,000 less than they sold their flat for two years ago.

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Mr O'Brien, a 43-year-old picture editor, said they had no plans to sell their current home, which has a front and back garden. Instead, they are redecorating to make it even nicer for their three-year-old daughter and her baby sister.

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