Scots mortgage market recovers slower than rest of UK

The rise in Scotland from the last three months of 2008 was 22% by volume and 19% by value, illustrating how the market improved over the course of 2009 from its low of 7600 loans (worth £785million) in the first quarter. Earlier in 2008, however, the market had been much stronger so the 47,000 house purchase loans advanced over 2009 as a whole was 23% down on 2008 and the fewest in the 16 years the CML has been producing this data.

As a result of the slower upturn, Scotland’s share of all house purchase loans fell to 8% in the quarter, the lowest share in nearly three years. The 9% share for 2009 as a whole was down from a high of 12% in 2008.

The number of first-time buyers in Scotland was unchanged at 5400 in the fourth quarter. But the value of lending to first-time buyers increased in the last three months from £474million to £479million, and the number of loans was up from 4100 (worth £368million) year-on-year.

Home movers saw a rise in activity from 8400 loans (worth £1billion) in the third quarter to 8800 (worth £1.1billion) in quarter four. Neither home movers nor first-time buyers saw much change in size of deposits or income multiples but mortgage interest payments as a proportion of income, one of many ways to assess affordability, fell significantly, particularly for the latter group – from 14.2% of income in the third quarter to 13% in quarter four. This is the lowest level since 2004.

In line with the rest of the UK, remortgaging volumes remain low in Scotland. There were 9000 remortgage loans (worth £900million) in the fourth quarter – down from 10,000 (worth £1billion) in the preceding three months and from 16,000 (worth £1.6billion) in the last three months of 2008. For the whole of 2009, there were 39,000 loans (worth £4.4billion) for remortgage, down from 74,000 (worth £7.4billion) in 2008.

As in the rest of the UK, many borrowers in Scotland will still find it difficult to access the more attractive new deals, which are typically only available to those with large deposits, and may prefer to remain on their lender’s variable rate. However, the rebound in prices and slight relaxation of lending criteria will mean that more should become eligible for these products in 2010.

CML Scotland policy consultant Kennedy Foster said: "We do not anticipate an increase in lending activity immediately. Funding conditions remain challenging, economic recovery is fragile both in Scotland and in the UK as a whole, and with little likelihood of interest rates rising this side of an election, many on low variable rates have little incentive to remortgage.

"A combination of bad weather in the early part of the year and the end of the stamp duty holiday will also have affected housing market activity, and will reinforce the slow start to 2010. However, the situation is much improved on a year ago, and a gradual improvement in market conditions and the wider economy should support a modest increase in activity later in the year."

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