Scotland 'should escape a UK crash in house prices'

HOUSE price growth in Scotland is slowing as the credit crunch tightens its grip, but a crash is not on the cards despite the increasingly volatile global economy.

In its latest Scottish residential market review, Savills estate agency forecasts average house price growth this year of 4 per cent, down from 12 per cent in 2007. A significant drop in prices is not predicted, partly because of Scotland's relative affordability.

Its average house price of 144,897 is well below the UK average of 197,101, according to Bank of Scotland (BoS).

As Martin Ellis, a BoS economist, said: "A key factor driving the increase in house prices in Scotland has been its relative affordability."

While a moderation in prices should be good for first-time buyers, the tough economic environment is making it more difficult for them to obtain mortgages. Many lenders have tightened their criteria and do not offer 100 per cent loan-to-value deals, due to the liquidity crisis. And the large numbers of homeowners who took out fixed-rate mortgages in 2005 and 2006 at very low rates will feel the squeeze when they are forced to remortgage on to more expensive deals.

Melanie Bien, a director of the mortgage broker Savills Private Finance, said: "Liquidity issues are likely to get worse before they get better, and further reductions in the base rate are unlikely to be passed on, in full, to borrowers."

Turning to buy-to-let, existing landlords could actually benefit from the credit crunch, as people will be forced to remain in rented accommodation.