by David Leask© The Herald
Originally published: 01.07.2008

The Scottish housing market is weakening - although the country still appears to be bucking the trend of sharp falls in prices seen across the much of the UK.

Figures released yesterday by Nationwide, Britain's biggest building society, showed the average cost of buying a home north of the border was £149,541 in the second quarter of 2008. That was actually 0.6% more than in the same period of last year - making Scotland the only part of the UK still showing annual growth in average house prices. It compares with a drop of 3.4% in UK prices in the same period.

The lender and analysts, however, warned Scotland was not entirely immune to the downward force hitting the entire British market.

Prices in Scotland, Nationwide said, have fallen for the last two quarters in a row. Essentially, six months of decline have almost wiped out gains made in the previous half a year.

A regional breakdown of the Nationwide survey showed house prices dipped 2% in Glasgow while they jumped 7% in Aberdeenshire and Moray.

Fionnuala Earley, Nationwide's chief economist, said: "Scottish house prices had already proved more resilient than prices in other UK regions during the first quarter, and this trend has been sustained in the most recent quarter.

"Nonetheless, Scottish prices have not been immune to the overall downturn in the UK housing market, and have now shown quarter-on-quarter declines for the second quarter in a row.

"Scotland's oil-producing regions have benefited from the sharp run-up in the price of oil. This has created particular pockets of strength in sub-regions such as Aberdeenshire."

The average home in Scotland costs a little more than four times the average income. Across the rest of the UK the average house goes for the equivalent of five and half average incomes. Economists believe Scotland is being buffered from the worst of the credit crunch because of this better affordability - but most expect prices to fall, but not by as much as in England and Wales.

The housing market downturn has now wiped 7.3%, or £13,500, off the value of homes across the whole UK compared with their peak in October last year, sparking concerns of a downturn in consumer confidence sparking wider economic woes.

The most comprehensive picture, however, will come from the Registers of Scotland, the national date base of sales. In May it said first-quarter prices had fallen 5.1% from the fourth quarter of 2007 but were up 7.3% from the first quarter of last year. Crucially, the registers reported that the number of transactions in the market were down 16%.

Nationwide does not publish figures for the volume of sales, citing commercial confidentiality. Other experts believe the market is slow. The overall number of mortgages granted has fallen to a record low, just 42,000 in the month of May, down 64% from the same month of 2007.

Ed Stansfield, an analyst at Capital Economics and one of Britain's best known house market experts, is pessimistic about the wider UK market - and Scotland, he said, will not be unaffected. "I don't think Scotland can sail through the current problems, which are caused by the credit crunch, which doesn't have a regional variation to it."