Signs point to the end of property price boom

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HOUSE prices in East Lothian have fallen for the first time in five years.

The cost of property in the county dropped by three per cent in the last four months of 2004 compared with the same period the previous year - but across the Lothians, average house prices rose by 5.37 per cent.

In Edinburgh city centre, the number of properties sold fell by 3.8 per cent, while prices rose by 2.38 per cent, taking the value of an average house up to 195,675.

Estate agents today claimed the drop in house prices in East Lothian was a "blip" rather than a sign that the market had bottomed out.

But some acknowledged a "dramatic slowdown" in price growth was taking place. The new figures emerged today in the fourth- quarter property price report from the Edinburgh Solicitors Property Centre (ESPC).

In the Capital, the "hottest" areas are to be found in the suburbs, where the average price of a four-bedroom family home rose by 20 per cent.

Taking 2004 as a whole, average house prices in the Lothians rose by 10.67 per cent to 161,637. That compares with a 17.35 per cent increase in 2003.

The fall in East Lothian is the first since the second quarter of 1999, when prices fell by 0.43 per cent.

Since then, when the average price was just 78,693, the area has seen huge growth which has nearly doubled property values.

In the second quarter of last year prices rose by 21.78 per cent, the third quarterly rise above 20 per cent in one year.

Average prices in East Lothian now stand at 142,920, the highest in the region outside Edinburgh.

Simon Fairclough, spokesman for the ESPC, said the drop was not an indicator that the prices would continue to fall.

"Over the year there have been increases in both the number of properties sold and the volume, so there is certainly no slowdown," he said.

"In terms of prices, people are looking outside the city centre now, and it is becoming more and more difficult in these markets.

"East Lothian in particular has seen significant increases over recent years and so this slight drop is something I would not be too concerned about.

"Demand in the city centre still outstrips supply, so there will still be people hunting in these areas for a house."

Wilma Flockhart, property manager of Haddington estate agents Chalmers and Co, said she had not witnessed a fall in prices on the ground.

"It is not something we are aware of, not yet anyway, and I can’t think of any reason why prices here would drop," she said.

"There are very few properties for first-time buyers and most of the houses being built are at the high price range of the market, so it is actually becoming more and more difficult for people here to get on the property ladder.

"We have had no difficulties shifting the last few properties we sold, and in general they have sold for a considerable amount more than the asking price."

The average price for houses in West Lothian rose by 11.52 per cent to 125,700. In Midlothian, average values increased by 15.46 per cent to 142,192.

In the city, the biggest move came in the suburbs, where the average price for four-bedroom detached houses rose 20.02 per cent from 287,285 in the fourth quarter of 2003, to 344,810 at the end of last year.

Three-bedroom semi-detached houses saw a similar rise, with the average price climbing 17.29 per cent to 203,954, up from 173,895 in 2003.

Property experts say the increased demand for houses in the suburbs has been driven by the lack of available property to buy in the city centre, a ripple effect that has also driven up prices across the Lothians. Historically, demand for traditional stone-built properties has vastly outstripped so-called "new-build".

But Ian McCombie, a partner in city firm Valente McCombie & Hunter, said he believed the gap had closed. "It is certainly not a hard and fast rule but I would generally say people were more eager to invest in more mature properties ahead of new builds, and consequently they could fetch a higher price," he said.

"[But] in the last two or three years, a lot of new-build properties, particularly flats in and around the city centre, have been sold on a par with more established properties.

"People have been seeing incredible returns on selling a flat they bought as new. In terms of the area as a whole, there is no question there has been a dramatic slowdown of house prices."

In the city, prices in Marchmont, Gorgie, Leith and Stockbridge all rose over the last quarter. An average one-bedroom flat in Gorgie, for example, would have sold for 88,660 at the end of last year, compared with 79,370 at the end of 2003, a rise of 11.7 per cent.

Two-bedroom flats in the Marchmont/Bruntsfield area saw their value increase by an average of 6.1 per cent in the same period, with the average selling price going from 187,972 to 199,454.

While prices across the region continue to rise, Mr Fairclough said there was no doubt the market was cooling.

"In 2002 we warned that the rise in property prices was too much, and that the Edinburgh market was producing prices which would simply be unsustainable.

"As you’d expect after a long period of growth in the market, the prices are now beginning to slow down.

"Over the year in 2003 prices rose by 17.35 per cent, but this year they rose by only 10.67 per cent, which shows there is a definite slowdown in the prices. This would suggest that over this year we will see prices continuing to slow down, and although there will be a rise, it will most likely be a single-figure rise.

"The same can be seen in fourth-quarter prices. Last year, the fourth-quarter year-on-year rise was 15 per cent, but this year it has dropped to 5.37 per cent."

Graham Bell, a spokesman for the Edinburgh Chamber of Commerce, said a sharp rise in house prices like those seen in the suburbs of the city were indicative of the problems faced by first-time buyers.

"We have seen this year that the average age of a first-time buyer is now 37, and whilst a price increase like this is good news for the homeowner, it represents a significant problem for those looking to buy in the city," he said.

"The house prices in the city centre have had the effect of a nuclear bomb, if you like, with prices all around it steadily rising as prices there stabilise and fewer properties become available.

"This forces people to look further afield for a house close to where they work and that in turn adds to their costs, in terms of both travel and time.

"As this continues people will find it harder and harder to find a place to live if they work in the city."