CML: Scotland not immune from market downturn

However, Scotland is not immune from the economic downturn as the decline in house purchase lending has accelerated. In the fourth quarter of 2008, there were 11,600 house purchase loans taken out in Scotland, down 23% from the previous quarter and a larger decline than the 14% experienced UK-wide. 

There were 4300 loans to first-time buyers in Scotland in the fourth quarter, down 19% from the previous quarter. There were 7400 loans to home movers in the third quarter, down 24% from the previous quarter.

Declining house prices may have contributed to the relative resilience of first-time buyer activity as a typical first-time buyer property in the fourth quarter was 11% lower than a year earlier, while typical home mover property values were unchanged.

Average loan-to-value ratios and income multiples have fallen across the UK, as lenders have tightened lending criteria in the face of falling house prices and a worsening economy. The average Scottish first-time buyer had a deposit of 20% and borrowed 2.8 times their income, compared with 11% and 2.98 a year earlier. The average Scottish home mover had a deposit of 27% and borrowed 2.63 times their income, compared with 25% and 2.82 a year earlier.

Lower mortgage rates have meant those borrowers able to get a mortgage are spending less of their income on mortgage payments. Interest payments typically consumed 16.9% of first-time buyers’ income in the fourth quarter, compared with 18.9% a year earlier. Home movers typically spent 14.7% of their income on mortgage payments, compared with 16.8% a year earlier.

There were 15,000 remortgage loans in the fourth quarter, a 30% decline from a year ago. This is the eighth consecutive quarter of zero or negative growth in remortgaging in Scotland, the UK has experienced ten consecutive quarters. Downward pressures on remortgaging will continue in coming months as attractive reversion rates and more restrictive lending criteria mean that many borrowers will stay with existing deals.   

Crawford McCaughie, CML Scotland Chairman, said: "The downturn in the mortgage market has been slower to hit Scotland, but we are not immune from the funding pressures and reduced consumer demand constraining lending activity across the UK.

"Those borrowers with access to a large deposit are clearly benefiting from falling house prices and lower mortgage rates."

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