EVIDENCE suggests that in the current economic climate both the mortgage and housing markets in Scotland are holding up better than elsewhere in the UK, at least for the time being.
Our own figures at the Council of Mortgage Lenders issued last week showed that while the number of mortgages granted for house purchase in Scotland in the second quarter of 2008 fell by 34%, when compared with the same quarter of 2007, this is a les
s pronounced slide than the 46% drop seen at a UK level.
The recent Lloyds TSB Scotland House Price Monitor for the three months to the end of July highlighted a 1.6% rise in house prices, albeit that the actual number of house purchases fell by some 27% from the corresponding period in 2007. And it is true that Nationwide saw falls of 1.8% over the same period and Halifax was even more gloomy, reporting values tumbling by 4.5%.
Nevertheless, it would seem the relative affordability and stability of the Scottish housing market is currently enabling it to demonstrate its traditional resilience in the face of the economic downturn.
However, we cannot afford to be complacent and there are clearly some causes for concern. Homes for Scotland is reporting a serious downturn in activity among its members, with a considerable number of new properties lying unsold and some 15,000 jobs having been lost in the industry.
This has serious implications for the need to increase housing supply, not to mention the impact which a downturn in new house building will have on the investment in schools, roads, infrastructure and other community facilities.
Solicitors and estate agents are reporting a downturn in activity and job losses in their businesses, with more houses on their books for sale, sales taking much longer and sellers not wishing to buy until they have sold. Shelter in Scotland is reporting a 40% increase in mortgage-related inquiries which suggests more people are having difficulty meeting their mortgage payments.
It was therefore particularly pleasing to see the Scottish Government recognise these areas of concern and announce measures to assist the housing market. Their proposals to accelerate the building of new affordable homes and to allow housing associations to buy stock or land from developers are particularly welcome.
The Scottish Government has supported our calls for the UK Government to reform stamp duty and the state safety net for borrowers in difficulty.
We have highlighted the action being taken by lenders to help borrowers who find themselves in financial difficulty and called on the Government to play its part by reforming income support for mortgage interest. We would like them to review the maximum mortgage limit of £100,000, which has not changed since 1995, and reduce the nine-month waiting period before a claim can be made.
A major issue for mortgage lenders remains the availability of funding to finance their lending. As Sir James Crosby recognised in his recent interim review of the mortgage market, the issuance of UK mortgage-backed securities has played an important part in the financing of mortgages in recent years. These markets came to an abrupt halt in the summer of 2007 and there is little chance that this situation will be quickly rectified without external intervention.
This means that lenders' ability to make new mortgage advances is severely constrained. In Sir James's view this could persist to the end of 2010.
We have called on Sir James to consider incentivising the issuance of new mortgage-backed securities and covered bonds by allowing investors who buy them to enter into a repo arrangement with the Bank of England and so ensure ongoing liquidity in these financial instruments.
We await with interest the publication of Sir James's final report in the autumn to see whether any action is to be taken.
If the shortage of mortgage funding were to last to the end of 2010 the traditional resilience of the Scottish housing market would be severely tested and the resulting mortgage and housing market deterioration would adversely impact on the wider Scottish economy. To do nothing would surely be the worst option.
• Kennedy Foster is a policy consultant at the Council of Mortgage Lenders in Scotland
The full article contains 716 words and appears in Scotland On Sunday newspaper.
