Soaring prices spark fears of property crash
SCOTLAND could be heading for a housing crash if prices continue to rise, estate agents have warned.
The ‘mini-boom’ of the past 18 months could end in market stagnation or even a huge slump, according to lettings and estate agency DJ Alexander.
The warning comes just months after it emerged that lenders were willing to offer homebuyers seven times their salary over a period of up to 40 years in response to market demand.
The agency said there is no sign of demand slowing and pointed to similar conditions prior to the 2008 financial crash.
David Alexander, chief executive of DJ Alexander Scotland, said: ‘No one wants to deny individuals the right to be able to buy the home of their dreams. Indeed, we should encourage this where possible.
‘However, you don’t need to have a very long memory to know that we have been down the route of very high multiples of people’s incomes before – and that this ultimately resulted in a massive correction in the market.
‘While the 2008 crash was also related to wider economic woes, it was clear that lending too much on the assumption that property will always increase in value was a major factor and a mistake that we don’t want to repeat.’
Mr Alexander added: ‘It should be remembered that average house prices peaked in Scotland in May 2008 at £145,641 and did not return to this level until July 2017 when they reached £147,566.
‘The UK average house price peaked in September 2007 at £190,032 and did not achieve this level again until August 2014, when it reached £191,932.’
According to Nationwide Building Society, the cost of the average Scottish home stands at £172,605, which is £15,836 more than at the start of 2021. In Edinburgh, the average price of a home hit £300,000, up 14.5 per cent on the year before.
Meanwhile, the former Lanarkshire steel town of Motherwell saw the greatest rise, with house prices soaring by 17.3 per cent in the past year. The average home there now costs £177,118, compared with £151,105 the previous year. Sharp rises in the property market have been predicted to continue this year, sparking concern.
Mr Alexander said: ‘What we need is a sustainable, growing housing market rather than one prone to peaks and troughs.
‘Prices will always fluctuate but in the long term it is better for everyone if prices rise at a reasonable level each year and maintain steady growth over five, ten, 20 years and beyond.
‘Making someone happy in the short term by giving them large levels of lending compared to their income may be good for them in the short term but may cause more heartache in years to come if interest rates rise and if circumstances change. That is when the true price of high lending will become apparent.’
‘Prone to peaks and troughs’