Sunday, March 06, 2005

Half of Scots homeowners believe housing boom years are at an end


JEREMY WATSON

THE DAYS of eye-popping increases in house prices in Scotland are over, at least in the minds of homeowners, according to an exclusive survey for Scotland on Sunday.

Half of Scots who were asked if the price of their homes would continue to soar in 2005 - as they have for the past three years - said they would only increase "a little". Only a diehard 5%, hoping that the market would continue to perform double-digit wonders, said prices would leap "a lot".

A further 18% hedged their bets, saying prices would remain stable. Significantly, only 6% thought prices would drop, demonstrating widespread faith that despite a slowdown, house values will still go up, although not by as much or as quickly as in the recent past.

The survey of 800 Scots by YouGov indicates that the Bank of England’s campaign to dampen double-figure house price increases with last year’s series of interest rises, appears to be working.

Both homeowners and buyers have lowered their expectations as the market has cooled following a steep increase in the cost of borrowing from 3.5% to 4.75%.

Mark Hordern, spokesman for the Glasgow Solicitors’ Property Centre, said: "Prices slowed dramatically towards the end of last year due to the interest rate rises, which had a big effect on people’s spending power.

"They do not now expect the kind of huge rises we witnessed in earlier years because there is uncertainty about whether interest rates will rise again. There is talk of them going up again to 5% by the end of the year.

"But no one expects a dramatic fall in prices because even interest rates at 5% are relatively low, and most people can still comfortably budget for them. In 1992, interest rates were at 15%."

House prices in Scotland have soared by an average of 171% over the past 15 years, with most of the increases coming in the past four years due to record low interest rates. Values in some areas of hotspots such as Edinburgh and Glasgow have soared by up to 400%.

According to a survey by HBOS, prices in parts of Edinburgh and Glasgow rose by more than 20% last year alone.

The effect of the Bank of England’s series of rises in interest rates has been monitored by the Royal Incorporation of Surveyors Scotland, which says other European countries such as France, Spain and Ireland, where interest rates are relatively stable, are all expected to maintain double-digit house price inflation this year.

An RICS spokesman said: "The UK alone saw its housing market decline significantly in the latter part of the year after a series of interest rate rises. From rising at double-digit levels in the first half of the year, the UK market saw its fortunes reversed as house prices stopped growing and mortgage demand fell significantly.

"Nevertheless, year-end prices were still markedly higher than in 2003 as a result of the strong increase in early 2004. It would appear that the UK boom could be coming to its end, although this will depend on interest rates and forthcoming house sales in 2005’s spring season."

Housing experts believe that the market in Scotland will continue to slow this year with rises pegged at around an average of 5% at the most, chiming with the results of the YouGov survey.

Although there have been hints from the Bank of England that interest rates may have to rise again this year if there is a spring upsurge in house prices, it is unlikely until after the expected May general election.

• YouGov questioned 808 adults aged 18-plus, resident in Scotland between February 10-12, 2005.

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