More Scottish Property News.

The stark forecast comes after Nationwide, the second-biggest lender in the UK, reported a second consecutive monthly drop in the value of property for the first time since February 2009.

The tumble is widely believed to be fuelled by a flood of properties entering the market as homeowners set the wheels in motion to move house.

A crisis in confidence in the market has been created as the full scale of the UK deficit comes to light, with unprecedented public-sector cuts causing further uncertainty.

This has led to a lack of house buyers, with discounts easy to negotiate.

Howard Archer, chief UK and European economist with IHS Global Insight, predicted house prices to fall by between 3% and 5% over the second half of this year and warned of further losses to come amid the tough economic climate.

"It is hard at this stage to be optimistic about house prices in 2011 as the fiscal squeeze will increasingly kick in, which will hit people's pockets and lead to serious job losses in the public sector. Consequently, a further drop of around 5% in house prices looks highly possible in 2011, and the drop could well be steeper still."

"Much will depend on mortgage availability and the amount of houses coming on to the market as well as how well the economy holds up. Therefore, we suspect that house prices will be at least 10% lower by end-2011 compared to their mid-2010 levels," he said.

Chief executive of Clyde Property, Bill Cullens, who has more than 40 years of experience in the Scottish housing market, agreed that the drop in prices was not unexpected.

"We had an unjustified surge at the early part of this year. I believe it was partly down to the run up to the General Election, when there was nothing but good news spoken by all the major politicians, all of whom gave the impression that the country was coming out of the recession and we rescued the banks," he said.

"All you are seeing now is the reality check. There is more property coming on to the market and people are quite rightly selling before they buy.

"Most of the people I am dealing with accept that house prices have fallen and that they are not going to increase. People have become less bullish when it comes to property.

Up to 60,000 public-sector jobs are expected to go in Scotland over the next four to five years, with accountancy firm Ernst and Young also estimating that total unemployment north of the border will peak at about 225,000 this year, against the pre-recession figure of 105,000 reported in mid-2008.

The financial sector in Scotland has already suffered heavy losses, with Direct Line, Standard Life and Aegon shedding more than 1500 jobs in recent weeks. Further cuts due as the industry resets in the wake of the banking crisis. RBS also yesterday announced that 3500 UK jobs are being axed.

Yesterday's Nationwide figures came amid further predictions of a softening in the housing market.

A report from UK Housing Market Monthly said: "Sales instructions continued to rise and buyer interest weakened further. Consistent with this, asking prices fell again and the discount typically achieved on asking prices rose to a seven-month high, while surveyors' price expectations fell to their lowest level since early 2009.

"It seems increasingly clear that the outlook for house prices is one of sustained weakness."

The report also noted that the loosening in market conditions had led to a glut of unsold stock on surveyors' books with some properties being left on the market for 12 months or more for the first time since mid-2009.

Nationwide said the latest price correction was not unhealthy given the fast acceleration of prices at the end of 2009 and early 2010.

"Recent market trends remain consistent with an unwinding of the supply-demand imbalance that drove up prices for much of the last year.

"As more sellers have returned to the market, buyers have a greater selection of properties to choose from and more bargaining power with which to bid down asking prices," said Martin Gahbauer, Nationwide's chief economist.

Kennedy Foster, policy consultant at the Council of Mortgage Lenders Scotland said conditions in the finance market would not hasten the recovery.

"Our view is that the mortgage market is going to be subdued in the second half of the year and that is down to a combination of things," he said.

"Consumer confidence has taken a bit of a kick during the recession. Public-sector cuts could lead to more unemployment and of course this leads to uncertainty.

"From 2011 onwards, lenders have to start repaying money that they may have borrowed from the Bank of England through its special liquidity and credit grant schemes. In total there was £400 billion borrowed that is due to be repaid between 2011 and 2014."

Mr Foster said that forthcoming FSA consultation on responsible lending could further restrict availability of finance for certain people.