Capital house prices tumble for the first time in 37 years

HOUSE prices in Edinburgh have fallen for the first time in nearly four decades – the clearest sign yet that the Scottish property market is not immune from the downturn.

The capital's most authoritative house sales survey yesterday recorded a 6.5 per cent year-on-year drop in prices, with the average property selling last month for £201,517. This was the first fall in prices since 1971.

The survey, by the Edinburgh Solicitors Property Centre (ESPC), showed only 400 homes had been sold in the month – down 60 per cent on the same period last year and the poorest August performance since Labour came to power at Westminster in 1997. The data also showed the capital's market was flooded with unsold properties – 3,400, compared with 2,000 last year.

Premiums paid to secure a property were only 14 per cent above the asking price, compared with 27 per cent last August.

Gareth Bogie, of the Edinburgh solicitors Allingham & Co, said: "The 60 per cent drop in the volume of sales is frightening.

"The market can cope with the drop in price – that will adjust itself to market conditions.

"However, it is the volume of sales that is very concerning. This is a real wake-up call.

"People in Edinburgh thought they were in a protected market, but this shows that they're not immune from market conditions."

David McLetchie, a Conservative MSP for Edinburgh who is also a lawyer in the city, said: "I hope that this finally dispels the complacency that Scotland is somehow immune from the housing problems facing the rest of the UK, and that people realise this is a problem we are all in together."

Edinburgh has traditionally been seen as a barometer for the rest of the country and had managed to survive UK-wide housing crashes over the past three decades.

Despite a rising population and strong financial sector, experts said the market's strength had been "eroded somewhat".

The figures came as Gordon Brown, the Prime Minister, announced a year-long freeze in stamp duty paid on properties worth up to £175,000 – a move designed to kick-start the market by helping first-time buyers.

Stamp duty – paid at an initial rate of 1 per cent of the purchase price – has been levied on homes above £125,000.

According to sales figures from the past year, about 330,000 UK house- buyers would have benefited from a stamp duty "holiday" – including 40,000 in Scotland who bought homes between £125,000 and £175,000 in the 12 months to April.

However, yesterday's announcement was undermined when many housing professionals said that the £1.6 billion package, which included help for people at risk of repossession and incentives for first-time buyers, did not go far enough to address the wider housing slump.

James Scott-Lee, of the Royal Institute of Chartered Surveyors, said: "A one-year stamp-duty holiday could provide some much-needed relief for first- time buyers struggling in the current market.

"However, nine out of ten of total transactions will be unaffected."

The stamp-duty announcement came as Mr Brown and his under-fire Chancellor, Alistair Darling, faced more bad news on the economy.

The Organisation for Economic Co-operation and Development said that the UK was heading for recession – the only one of the G7 group of the world's wealthiest nations to do so. The Paris-based think-tank predicted the UK economy would shrink 0.3 per cent in the third quarter, and 0.4 per cent in the fourth – meeting the criteria for a full-blown recession of two successive negative quarters of growth.

There was better news for Scotland with a forecast from one of the country's most authoritative bankers that the Scottish economy would continue to expand for the rest of 2008, despite the difficult "economic headwinds".

Martin Ellis, chief economist at the Bank of Scotland, said the economy was expected to grow through 2008 and into the start of 2009.

That appeared to reinforce the Scottish Government's contention that Scotland was riding out the economic downturn better than the rest of the UK.

But the news that prices in the previously rock-solid Edinburgh market were falling appeared to undermine this. UK-wide indicators have pointed to a downturn in the housing market for several months.

Many, including Alex Salmond, the First Minister, had suggested the market in Scotland was bucking this trend. But last month, the head of estate agent Slater Hogg & Howison said that was nonsense, claiming official figures were not keeping pace with conditions on the ground.

The new figures suggest this view is correct.

Ron Smith, the chief executive of the ESPC, said the rise in the number of properties available, coupled with constraints on demand caused by tightened lending criteria, had left buyers in a stronger position to negotiate lower prices.

THE HOUSING CRISIS: MORE COVERAGE

• Brickbats for Brown's stamp duty masterplan

• First Edinburgh house-price fall since 1971

WHAT THE EXPERTS SAY

CRAWFORD McCAUGHIE, head of lending at Dunfermline Building Society, said:

"It is a welcome and sensible move. But this is only part of the jigsaw.

"The bigger picture is consumer confidence overall. The mortgage funding markets are still not open to any great extent, and until this happens a meaningful and sustainable recovery of the housing market might not be achieved."

CATHERINE TAYLOR, property partner in legal firm, HBJ Gateley Wareing:

"This is a sensible measure which will help the housing market and bring a measure of confidence back.

"There may have been an issue over the summer with some potential house-buyers staying away in anticipation of stamp duty relief. This will go some way to addressing this and provide much-needed relief for first-time buyers."

CHRISTINE WHITEHEAD, professor in housing at London School of Economics:

"I would have given a stamp duty holiday of six months because 12 months allows people to think about making a purchase more whereas six months gives them pressure which might push them into housing market. It is not unusual for other countries to have first-time buyers excluded from stamp duty."

STEWART BASELEY, executive chairman of the Home Builders Federation:

"We have consistently called for a stamp duty holiday and for action to help those seeking to get on to the property ladder, including a new shared-equity scheme involving developers. Advancing investment in social and affordable housing will help maintain housebuilding activity and capacity."

GRAEME HARTLEY, director, RICS Scotland:

"A one-year stamp duty holiday could provide some much needed relief for first-time buyers struggling in the current market and the move will have some impact in Scotland, where the average price a first-time buyer pays is around £120,000. At best the relief will save buyers £1,750, a drop in the ocean of the £27,738 that RICS estimates as the average costs of buying a home in the UK."

LOUISE CUMING, at moneysupermarket.com, said:

"While this appears to be a positive step, there are still problems. Firstly, it only lasts 12 months. Secondly, the Chancellor is not pushing the threshold far enough. It's affecting houses between £130,000 and £175,000, which is below the average house price, no matter which housing price index you look at. I hoped it would be increased to at least £200,000."

ANDREW SMITH, of Strutt & Parker estate agents, said:

"The latest announcement on stamp duty is not enough to make a dramatic difference across the market as a whole. The new measure impacts on a relatively small number of buyers across the UK. The total saving possible is £1,750, which equates to £33.65 a week over a year.

"Although every little helps, it is difficult to believe it will have a dramatic effect."

STUART BLACK, head of residential sales and marketing at Knight Frank in Scotland, said:

"Sales and purchases that have been wavering in the market will receive a much needed impetus with the stamp duty announcement. With Scotland's average house price being £137,920 (26 per cent below the UK average), this will benefit a broader level of the market. This can only help in stimulating confidence and activity."

RUSSELL HILLS, head of tax for KPMG in Scotland, said:

"This is not the kickstart the housing market needs. The real issues come down to fundamentals such as lack of consumer confidence and the difficulty of getting a mortgage, as banks tighten their lending criteria. By raising the threshold by £50,000 to £175,000, the Chancellor is effectively giving additional relief of just £500 to homebuyers."

SEAN GARDNER, at MoneyExpert.com, said:

"Raising the stamp duty threshold to £175,000 isn't going to solve the problems in the housing market, but it's a move in the right direction for home buyers, afflicted with ever more fees and charges. Mortgage arrangement fees have shot up dramatically in the last year and are increasingly now around £1,000. Such charges can have a real impact on a borrower's ability to buy."

RON SMITH, chief executive at ESPC, said:

"The major constraints on the markets so far have been in lending criteria and lack of affordability, and the stamp duty holiday is not going to significantly change either of these things at the end of the day. Whether it is successful in enticing new people to the market rather than assisting those who are already thinking about it is perhaps a matter of some debate."

ED MONAGHAN, managing director of housebuilder Mactaggart & Mickel, said:

"We are underwhelmed and believe there should be relief of stamp duty on homes worth up to £250,000. The whole economy could benefit, given the added pressures on household incomes. The Bank of England must also step up to the plate. At the very least, a drop in interest rates this week could help lenders pass on more affordable mortgage rates."

MICHAEL LUCK, managing director of the estate agent Slater Hogg & Howison, said:

"I think it is a good step because anything that helps the market is absolutely worthwhile. This move will help first-time buyers and should enable people who are on the border of getting a mortgage to do so. The money that would have gone on stamp duty can now got towards a deposit and this move will bring fresh buyers in to the market place."

HOWARD ARCHER, chief economist at Global Insight, said:

"While these measures are welcome for the people who benefit, we suspect they will have a limited overall impact in supporting the housing market as the underlying fundamentals remain poor.

Furthermore, if potential house buyers expect prices to continue to fall markedly over the next year or so, there is little incentive to buy a house in the near term."

VALERIE SMART, director of private client services at PricewaterhouseCoopers LLP, said:

"This is wonderful news for those struggling to get on the housing ladder not least because it will bring to an end the speculation of 'what might be' that has affected activity levels in the residential property market. It is great news for Scotland where average house prices are below £175,000 but it doesn't help those buying more expensive properties."

DANIEL LEE, chief executive officer of property search engine Globrix, said:

"I'm not quite sure where Hazel Blears got her figures from but they don't tally with our own. Our figures, refreshed daily, show that only 40 per cent of the market, almost a quarter of a million properties, are valued at £175,000 or less – not the 50 per cent figure quoted by the government. Fewer will benefit from the stamp duty change."

DONALD MARTIN, partner at MacLeod Independent Financial Advisers in Stornoway, said:

"In this area it will help people because the average house price is considerably lower than that of the rest of the UK. Apart from first-time buyers, the people who will benefit will be house builders. But the window for the threshold is too short. If you think how long it takes to buy a house it is a process that very often takes over a year."

MARK COULTER, managing director of residential property at Lindsays, said:

"This announcement will not fix the problem. It will certainly help a sector of the market but will really only act as a short-term remedy. If the government and the Bank of England want to avoid a recession then the government needs to abolish stamp duty and aggressively drop interest rates. This would encourage people to spend."