272: Boom-and-bust warning as house prices soar 15%
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BOOM and bust could still pose a threat to the property market, experts warned yesterday, as figures showed Scotland's buoyant housing sector continues to outstrip the rest of the UK.
Datamonitor, the market analyst, said the "outstanding" performance of the property market in 2006 and almost double-digit house-price inflation had renewed fears of a subsequent crash.
Spiralling levels of personal debt, increased interest rates and a riskier approach to lending adopted by some sub-prime mortgage providers could seriously impact on future prices, the research suggested.
The warning came as house prices in Aberdeen surged 10.3 per cent in the first quarter of this year - well ahead of recent UK-wide rises - while property values in Edinburgh have trebled in the last ten years, leaving first-time buyers struggling to get on to the property ladder.
Overall, prices in Scotland have gone up by 15.2 per cent in the past 12 months, compared with 9.5 per cent for the UK. They are forecast to rise by 7 per cent in the coming year, outperforming a predicted UK average of 4 per cent.
Karina Purang, financial services analyst at Datamonitor and author of yesterday's report, said: "We do not believe the housing market is on the road to a house-price crash, but the threat of a boom-and-bust cycle is still present.
"A number of issues, such as high levels of personal debt, averaging £4,522 per person, could have a considerable impact on the future performance of the mortgage market.
"Such buoyant housing activity cannot be sustained long-term and house prices cannot keep going up forever."
The report predicts that the UK mortgage market will continue to grow slowly over the next five years, with total gross advances by lenders rising by 2.6 per cent a year. The report noted that many households are feeling the pressure of high levels of debt and this had started to feed through to mortgage repayments. In addition, hikes in interest rates to curb inflation are likely to further burden consumers, particularly those with too much debt.
The report stated: "Given the current situation of high personal indebtedness, the sub-prime sector poses more risk than before.
While lenders are required to practice a responsible lending policy, there are players which are willing to take a riskier approach to lending by relaxing their criteria to attract more customers."
This, the report concludes, could have serious consequences for the mortgage market.
But Tim Crawford, group economist with HBOS, said Scotland's house-price growth was "the most stable it has ever been" and that a boom-bust cycle was unlikely.
He added: "Scotland has never had a house-price crash and the boom is still catching up with other parts of the UK, so there would be no real precedent."
HOUSE prices in Scotland's most expensive city have trebled in the past ten years, leaving first-time buyers struggling to get on the property ladder.
The latest report from the Edinburgh Solicitors Property Centre (ESPC) yesterday showed the average cost of a city property is now £207,669, three times the price of ten years ago, when sales averaged £68,195 in the first quarter of 1997.
Ron Smith, the ESPC's chief executive, said: "The level of growth in east-central Scotland, particularly in Edinburgh, [is] remarkable. The city has reported annual growth in excess of 10 per cent in four consecutive quarters."
Meanwhile, Aberdeen's booming economy has sent house prices so high they have almost caught the UK average. The Aberdeen Solicitors Property Centre said the average property price for the first quarter of 2007 was £187,305, compared with £168,071 at the end of 2006.
Source:
The Scotsman