CML news & views
Issue no. 10 - 4 June 2008
Scottish housing market faring better than UK average
New data we published about the Scottish mortgage market shows that, while the credit crunch is restricting lending for house purchase across the whole of the UK, it is having less of an impact north of the border because housing is more affordable there.
In the first three months of this year, the number of loans for house purchase was down 40% year-on-year across the UK, mainly because of the credit crunch. But in Scotland the decline was less pronounced with 20% fewer loans for house purchase.
One of the reasons for this may be that housing in Scotland remains comparatively affordable, so borrowers may not have been affected as much by the tightening of lending criteria affecting all national markets in recent months.
Scottish home-buyers typically borrow less relative to their incomes – and mortgage interest payments consume a smaller proportion of their incomes – because house prices are more affordable than the UK average. In the first quarter of this year, the average Scottish customer borrowed 2.87 times their income, compared with 3.14 in the UK as a whole, and mortgage interest payments accounted for 16.9% of the average Scottish borrower’s income, compared with 18.5% in the UK.
Scottish house prices have been rising relative to the UK in recent years, but are still on average 25% lower.
With lending less restricted in Scotland, its share of the UK market for lending for house purchase had risen to 11.2% by the first quarter of this year, compared to 8.4% a year earlier.
As in the rest of the UK, remortgaging in Scotland is stronger than lending for house purchase. Year-on-year, the volume of remortgaging in Scotland was unchanged, with a total of 20,000 loans in the first three months of this year matching the same period in 2007.
As in the rest of the UK, however, confidence in the Scottish housing market remains fragile. We therefore believe that the Scottish government could help by investing more in both the new-build and Open Market HomeStake schemes. We estimate that the proposed £2,000 first-time buyer grants could cost £70 million a year. That money would be better targeted at HomeStake schemes, we believe.
