THE economic squeeze will "get worse before it gets better", experts warned yesterday, as the UK's biggest building society admitted its new mortgage lending dropped by more than half last year.
And a housing charity warned Scotland is no longer "insulated" against a market fallout.
And a survey published today by the Chartered Institute of Management Accountants (Cima) shows almost half of its 200 finance director members think the c
runch is likely to provoke a full-blown recession. Although the majority are buoyant about their own business fortunes, just 15 per cent of them think recession will be avoided.
Nationwide lent £6.7 billion in the year to 4 April – 40 per cent less than the previous 12 months – but still managed a rise in profits.
Ed Stansfield, a property expert with Capital Economics, said the development was consistent with other evidence that banks were unwilling to release funds and potential buyers were unhappy borrowing. "It means things are going to get worse before they get better," he said. "We have got to be concerned that the tremendous drop in activity levels in the housing market is going to have a knock-on effect."
Meanwhile, Shelter Scotland warned the market north of the Border was now more in line with England, where house prices have risen dramatically in recent years before stalling.
As experts gathered in Edinburgh yesterday for the Scottish Housing Bubble event, James Jopling, the head of campaigns at the charity, said soaring house prices, which have seen many priced out of the market, could mean difficult times.
He said: "Historically, Scotland has been seen as having less dramatic house-price rises and less savage consequences in downturns.
"However, the last four years has seen the gap between Scotland and England narrow significantly."
He said the charity's Roof Affordability Index showed the average first-time buyer's property had rocketed from £38,845 ten years ago to £108,446 – a rise of almost 180 per cent, compared to 204 per cent in England.
Professor Steve Wilcox, who compiled the index, said: "Previously house-price rises and falls in Scotland have not been so severe as south of the Border, but this time round there are very different factors at play.
"There is certainly a lot of uncertainty, particularly around the effects of the crash of the sub- prime market in the US and the global credit crunch. The question is not whether there will be a housing fallout or not, but how severe will it be."
