by Douglas Fraser© The Herald
Originally published: 08.12.2007

House prices in Scotland will grow more strongly than the rest of Britain, according to the latest Bank of Scotland forecast.

The economic outlook is less gloomy than others have portrayed it in recent weeks, particularly for Scottish home-owners - but that continues to mean difficulties for those trying to get into the market.

It is expected house prices will rise at roughly the rate of retail price inflation during 2008 - around 4%. By contrast, the average for the UK as a whole is of no growth in house values, and falling prices in northern England and the Midlands.

Homes north of the border will see their value increase faster than the rest of the UK for the fifth consecutive year, it is reckoned. They will reach a Scotland-wide average of £148,000, up from £141,000 this year. Ten years ago, the average was £59,000.

The average Scottish house price rise over the current calendar year has been 10%, the fastest growth rate in the UK, where the average has been 5%. The slowdown follows the global credit squeeze threatening an economic slowdown and the threat of recession in some economies.

The projection published yesterday reflects rising mortgage costs as central banks have pushed up interest rates, and it assumes that rates will follow this week's quarter point fall, with another cut to 5% next year.

The Bank of Scotland, which as part of Halifax Bank of Scotland is the UK's biggest mortgage provider, said its house price inflation forecast is based on "strong fundamentals underpinning demand in Scotland". That includes an expectation that employment levels are due to reach record highs next year, although they are set to be constrained by skill shortages.

It also reflects the ratio of earnings to home prices in Scotland being significantly below that of the rest of Britain. The average house price in Scotland is 4.7 times earnings, while the UK average is six times.

The towns most likely to see house price rises include Greenock and Paisley, where prices are below average and where there are good transport links to Glasgow and Edinburgh.

Also set for a boost is the Fife village of Lochgelly which registered the lowest valuations in the country. Aberdeenshire is set for a relatively strong market on the back of the offshore sector's strength.

But nervousness about the market is expected to see fewer transactions, down from 150,000 sales this year to a forecast 140,000 in 2008.

Commenting on the figures released yesterday, Martin Ellis, the Bank of Scotland's chief economist, said: "Scotland should again outperform the UK average which is likely to see flat house prices next year.

"A strong economic background, along with Scotland's relative affordability, will underpin the Scottish housing market."