House prices in Scotland are continuing to buck the trend and avoiding the mortgage meltdown hitting homes in many parts of the UK, where values have sustained their biggest fall in 12 years. The question is can it last?
The Registers of Scotland will tomorrow paint a reasonably glowing picture of the performance of property in Scotland when it reports that house prices rose over the third quarter of the year, pushing the average price of a home north of the Border in the direction of £160,000.
This contrasts sharply with the gloomy news emanating from elsewhere, not least the data from the Nationwide, which has recorded a historic 0.8% fall in November across the UK. Britain's biggest mortgage lender, the Halifax Bank of Scotland, is expected to confirm the market is slowing when it publishes it latest house price index this week.
But Scottish homeowners have no room for complacency because tomorrow's data may not be as good as it looks. Read between the lines and it is clear the market here is also cooling.
For example, there are signs that the annual rate of inflation is weakening from the well over 14% reported by the Registers of Scotland at the end of the second quarter, although it continues to tower over the 6% to 7% reported across Britain.
Furthermore, the Registers' report is a snapshot of what was happening at the end of September, before confidence collapsed in October. That was the month demand for new loans fell by 22%, according to the Bank of England, nearly a third lower than a year ago, and at the lowest level for three years. It takes a leap of faith to believe that the Scottish appetite for risk can really be so much stronger than other UK homeowners. With only 88,000 new mortgages taken out in October, you can be sure plenty of Scots also took fright, and cancelled plans to move.
There are plenty of silver linings, but even these threads can only be stretched so far. Commentators expect Scottish property to perform well next year, escaping the pain of sliding values, primarily because prices are already significantly lower, and therefore have much less room to fall back.
The problem in this analysis is that the longer Scottish values continue to rise while other regions are falling the more that price gap narrows.
It is already happening. The Communities and Local Government Department put average Scottish
valuations at £163,359 at the end of September. This compares with the £184,131 the Nationwide said you needed to buy a home elsewhere in the UK, and the £198,500 Halifax property price tag.
Since September, experts agree prices have continued to rise in Scotland but fallen elsewhere. Surely such a trend is unsustainable long-
term? I mean, if Scottish house prices rose by 10% over the next year, while the UK as a whole fell the same amount, a typical home here would cost £180,000 against prices in the south as low as £165,000. That's not going to happen.
Of course none of us knows what will happen over the coming year. Much will depend on how quickly the Bank of England cuts
interest rates, and hopes are riding high that some reprieve for home buyers could come as soon as this week. However, even if the bank does cut interest on Thursday, Scrooge is here to stay. It is by no means sure that borrowers will benefit from a reduction in the cost of borrowing. On Tuesday the Nationwide is pressing ahead with hikes not cuts to the interest it charges on many of its loans. It will not be alone.
Sums don't add up
NICE try Aon. Tomorrow the pensions company will attempt to persuade us that our retirement worries are over with the news that black holes in final salary schemes have almost disappeared, falling sharply down from £41bn to £3bn.
Any step in the right direction is good news, but bad news travels fastest, and that's the only kind likely to be heading towards scheme members in the form of demands for higher contributions, benefit cuts and more scheme closures.
This is because, I'm afraid, Aon's calculations do not take into account the latest assumptions about our rapidly improving life expectancy. Nor do they allow for the impact of scheme specific funding, which will cause much pain to many companies and their work forces when it is introduced over coming months. Finally, it does not adjust to take account of the higher levies to the Pension Protection Fund safety-net announced last week.
On this basis, I would expect deficits to deteriorate rather than disappear over the coming year.
