© The Herald
Originally published: 06.01.2007

SCOTLAND recorded one of the biggest annual rises in house prices in the UK in 2006 with the typical home increasing in value by 12.5-per cent, according to new figures.

But the Halifax House Price Index showed that, in the final quarter of last year, Scottish house price gains were lagging behind much of the UK and it predicted that gains in house values would cool this year.

While the value of the average Scottish home increased by 3-per cent in the final three months of 2006, across Britain there was a 4.2-per cent rise.

For the year as a whole, the cost of a home in Scotland rose by 12.5-per cent, compared with 9.9-per cent for the UK, according to the HBOS survey.

In 2005, prices across Scotland rose by an average of 14.8-per cent, nearly three times the rate of the typical British home, helping to narrow the north-south house price gap.

The cost of an average home in Scotland was GBP126,639 in December, while for the UK it was GBP186,954.

Only homes in Northern Ireland, where average values soared by 52.9-per cent in 2006, and East Anglia, where prices rose by 13-per cent, experienced a higher gain than Scotland last year.

House prices across the UK did better than most analysts were expecting, rising by nearly double the rate of 2005.

Martin Ellis, HBOS chief economist, believed the disappointing Scottish figures for the last quarter was a short term blip.

HBOS is forecasting that the value of the average Scottish home would rise by 7-per cent in 2007 which compares with a 4-per cent prediction for the UK.

"Over the course of this year we would expect Scotland to continue to out-perform most of the rest of the UK, " he said.

However, he warned: "The market in Scotland is cooling and we are seeing a slowing in house price inflation. We have had a good number of years where Scotland has seen double-digit growth and it has been one of the strongest performers in the past three years.

"But inevitably affordability issues and predicted interest rate rises will make it more difficult to get people into the market. That limits demand and therefore house price inflation is expected to ease on the back of that."

The resilience of the UK property market in 2006 has surprised HBOS and other analysts and forecasters. This time last year, HBOS was predicting that soaring fuel, energy and council tax costs would hit the UK market in 2006 and predicted average growth for Scotland would be 7-per cent compared with 3-per cent for the UK.

The HBOS report also shows that UK house prices fell for the first time in six months in December, indicating that the two interest rate rises last year may be taking their toll on the market.

But many analysts do not believe the 1.2-per cent dip was anything more than a blip.

Mr Ellis added that it was too early to conclude December's fall was the start of a genuine slowdown. However, it did suggest higher interest rates were making buyers more wary.

"Speculation about a further rise is also making people more cautious, " he said.

Some house prices analysts put the continued acceleration of home values in Scotland down to the "artificial" factor of a lack of supply of houses for buyers.

New figures produced by the Bank of England show that mortgage approvals in November were at their highest levels since the end of 2003 showing that the consumer appetite for homebuying has not been ruined by interest rate hikes.

The bank said approvals for home loans in the month rose to 129,000, up from 128,000 in October. The number of people remortgaging their home also increased during the month, up from 101,000 in October to 112,000.

Total net lending in November increased by GBP10.9bn, up from October's figure of GBP10.8bn and greater than the previous six-month average of GBP10.2bn.