The Scottish home market experienced 20% fall in new home loans during the first quarter of 2008 due to credit crunch and lack of liquidity schemes.
According to the Council of Mortgage Lenders (CML), the housing industry of Scotland witnessed a slump of 20% in the number of new home loans during the first quarter of 2008. The number of loans for buying homes were around 16,000 in the Q1 of 2008 compared to 20,000 in the corresponding period last year, as reported by Scotsman.
CML also disclosed that an average borrower in the country took loan 2.87 times of his income in Q1 of 2008 whereas the figure for the rest of the UK stood at 3.14. Besides, the mortgage repayments in Scotland accounted for 16.9% of average borrower’s income whereas the UK recorded an average of 18.50%.
The decline in the number of housing loans in Scotland is largely attributed to the lack of mortgage funding that has severely hampered the housing market. Hence, several hundred offices across the country were shut down in the beginning of this year due to lack of mortgages for potential homebuyers.
Moreover, this is the first time ever when the average home price in Scotland becomes equal to four times the region’s average salary. As a result, buyers have been severely hit. Low credit availability and squeeze in the credit market left the housing market of Scotland struggling. Hence, the current conditions hampered the consumers’ confidence and home aspirants have postponed their plans to take home loans in view of high interest rates. Consequently, the new home loan figures slid down in the first quarter of 2008.
However, there is a possibility of further fall in the property market of Scotland as Capital Economics, the economic forecasting consultancy, predicted 5% decline in housing market this year. The prediction made by CML also get indirect advantages from special liquidity scheme of the Bank of England that will come into effect in the mortgage market later this year.
According to a Research Analyst at RNCOS, “The Scottish home market slumped in the first quarter of 2008 largely on account of credit crunch and shortage of funding. However, the Bank of England will initiate some liquidity schemes in latter part of this year but slowdown will become worse before it starts recovering. Moreover, coming years would not be good for the Scottish housing industry because of poor mortgage market.”
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