SCOTLAND has seen a 20 per cent slump in the number of new home loans, according to the first in-depth report from the Council of Mortgage Lenders on the housing market north of the Border.
The CML said there were 16,000 loans for house purchase agreed in the three months to April, down from 20,000 in the first quarter last year.
But the Scottish housing market is weathering the credit storm better than the rest of the UK, where home
loans plummeted by 40 per cent over the same period.
The CML also found that the average borrower in Scotland borrowed 2.87 times their income in the first quarter of this year, compared with an average elsewhere in the UK of 3.14.
Mortgage repayments accounted for 16.9 per cent of the average Scottish borrower's income, against a UK average of 18.5 per cent.
And with house prices still 25 per cent lower than the UK average, Scotland has been able to escape the worst of the UK housing market slowdown, said Kennedy Foster, policy consultant for CML Scotland.
"The Scottish market is holding up better than that in the rest of the UK. To date there has been less of an impact in Scotland than the rest of the UK as the affordability is better here, meaning borrowers have been less affected by the tightening in lending criteria."
However, the number of mortgages is likely to fall further in the coming months, Mr Foster warned. "The shortage of mortgage funding has had a dramatic impact across the UK and we expect the slowdown to get worse before it gets better," he said. "The months ahead will be difficult in the mortgage market and it will be 2009 before we see any pick-up."
Scotland's share of the UK mortgage market increased to 11 per cent, up from 8 per cent in the same quarter last year, according to the CML data.
Scotland should continue to avoid the worst, forecast Leslie Deans, senior partner of property solicitors and estate agents Leslie Deans & Co. "Property remains decent value for money in Scotland, as we do not have the peaks and troughs that exist in England. However, there is no doubt that the credit crunch has had an effect and I would not presume to say that the worst is over for Scotland at this point."
Demand for remortgaging remained strong, with 20,000 loans in the first quarter compared with 21,000 in the corresponding period last year.
But loans to first-time buyers were down by 8 per cent, said the CML, with demand for home loans currently outstripping supply.
Reduced mortgage availability is not the only reason first-time buyer numbers have fallen, said Lesley Canavan, general manager of the money management division at the Edinburgh Solicitors Property Centre.
"The situation here is not as bad as the rest of the UK, but people have been scared off the market," said Mr Canavan. "Applications are not being declined, but people are too hesitant to apply for mortgages because they think they will not be approved. However, where affordability is not a problem, lenders will lend money."
The CML called on the Scottish Government to bolster the market through better funding of HomeStake schemes, launched in 2005 to help people on a low income who want to own a home but cannot afford the full price.
"It could help underpin confidence at this uncertain time by increasing investment in both the new-build and open-market HomeStake schemes," said Mr Foster. "We estimate that the proposed £2,000 first-time buyer grants will cost £70 million a year. That money would be better targeted at HomeStake schemes."
Expert's ten-point plan to revive marketA SCOTTISH property expert has published a manifesto designed to revive the flagging housing market.
John Brown, director of DTZ in Scotland, has created a radical ten-point plan with which he plans to lobby the government and says would give the market a boost.
The measures include the planned seller-survey packs, cancelling stamp duty for first-time buyers and making Edinburgh's tram system free of charge for the first two years to help sales at the struggling Waterfront development in Granton.
Other suggestions put forward by Mr Brown are to make a second property free of capital gains tax, help couples who owned their own homes before moving in together and reintroduce mortgage tax relief for first-time buyers, after the scheme was axed more than ten years ago.
Mr Brown said: "We are in a cycle of property prices now. We have had a brilliant ten to 12 years. Everybody has got used to continued house-price growth, and that cannot continue. However, if the government put some of these measures in place, it would give the struggling market a boost.
"First-time buyers especially have been left out of the market as prices have risen, which will have a knock-on effect as they are important to the long-term future of the market."
He added: "Introducing these measures would make people realise that this is a government that is listening to market conditions."
Mr Brown also said the Scottish Government should scrap the idea of local income tax, amid fears that the scheme could drive away high earners who may plough large amounts of cash into property.
The ten-point plan is part of DTZ's Scotland Housing Market Review which is to be published today. Mr Brown plans to hand out copies outside of today's housebuilding conference at the Edinburgh International Conference Centre run by Bell & Scott Property Lawyers.
