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© The HeraldOriginally published: 20.07.2007
Scotland’s property boom will slow down this year as interest rate rises make buyers more cautious, according to figures issued yesterday. The Bank of Scotland economic forecast estimated housing prices north of the border would increase by 10% over the year compared with 12.5% in 2006.
It said recent mortgage rate increases and rising food prices were putting pressure on householders’ finances and reducing the amount of money they have available for buying new property.
However, the market in Scotland is still performing better than the rest of the UK, where housing prices are expected to rise by only 6%.
Tim Crawford, group economist at the Bank of Scotland, said: “Whilst house price growth was stronger than expected during the early months of 2007, there are now more signs that the market is slowing. We expect this trend to continue.”
The biggest increase in house prices will be in Northern Ireland, where house prices are expected to grow by 23% over 2007, compared with 12% in Greater London.
However, the north and south divide is widening further, with the difference in the average house price expected to rise by £14,500 to almost £105,000 by the end of the year. The report showed that more people were turning to fixed rate mortgages. Over the past 18 months nearly 70% of new mortgages were taken out on fixed rate terms, above the average of 40% since 1993.
Around 1.3 million borrowers took out fixed rate mortgages in 2005 and a further 1.5 million in 2006.
But the bank warned the rising rates will impact on home owners who took out a fixed rate mortgage deal two years ago. It is estimated a borrower with a mortgage of £114,000 which was fixed at 5.08% in 2005 will face an increase in monthly payments of around £65 if they move to a mortgage which is fixed for two years at 6.04%.
The bank noted that average earnings had increased by 7% in monetary terms over the past two years and said most people would be able to afford the higher mortgage payments.
The proportion of the household income that people are saving is expected to rise again after falling recently. In the first quarter of 2007 it dropped to 2.1%, the lowest in 50 years.
However, householders are continuing to put aside money and this year are expected to increase the amount they save in deposit based saving accounts by £70bn in 2006. The increase in savings means the total held in savings accounts will rise to more than £1tn for the first time by the end of the year.
