Bank Of Scotland Warns On UK House Prices

by Carla Johnson, Investors Offshore.com

02 October 2006

Expats looking to invest in property need to tread carefully says the Bank of Scotland International, as house price inflation in the UK is now showing definite signs of moderating, according to data released by Halifax Housing Research. This change in fortunes follows the rapid growth seen earlier in 2006.

Although prices rose by 1% in August, in the three months before this, the average rise was a far more modest 0.2%, bringing the annual rate of house price inflation down to just over 8% from 9.4% in June.

Looking ahead, the rate of price growth is expected to slow further, as the effects of the recent rise in UK Base Rates impact upon both fixed and variable rate mortgages. In addition, high energy and utility costs will continue to exert pressure on consumers. Overall, the market is described by Halifax Housing Research as solid. However, the number of home loans approved was 24% higher for the three months to July compared with the same period last year. There is now increasing evidence from the RICS (Royal Institute of Chartered Surveyors) that the volume of new loans approved has reached a plateau.

Ranald Caldwell, Head of Lending, Bank of Scotland International comments, “For the rest of 2006, we are still expecting house price inflation in the UK to moderate and we have a target figure of 5% for the average rise during the year. High energy costs and higher mortgage interest rates will inevitably absorb disposable income, which in the long term will help lay the foundation for an eventual cut in UK Base Rates, although that may be some way off.”

Regionally, significant variations emerged during the last quarter. Whilst Greater London and the South East recorded rises of 2.1% and 2.8% respectively, prices in Wales actually fell back by 0.8%. Scottish house prices rose by an average of 5.7%, whereas the rate of rise in the North West was a more modest 0.2%. In the South West, the trend was higher at 3.8%.

Ranald Caldwell adds, “During the second quarter, the average rise across the UK was 2.6%, giving a national average of 9.4% for the year. However, with the softening of prices since June we have already seen this national average figure fall to just over 8%, as one-off factors, such as city bonuses, work their way through the system.”

The quarterly rise in the South West was the largest increase in prices for any English region and contrasts sharply with the 0.2% rise in the North West. The average price of a house in the North West is now just under £142,000, compared to nearly £193,000 in the South West.

Ranald Caldwell ends, “Our specialist expatriate lending service is in a unique position to help guide clients through the pitfalls of choosing the right mortgage for their individual needs. Clients looking to purchase a UK residential property for buy-to-let or as their main residence need to stay aware of trends in house prices and the pressures on interest rates. For those looking for budgeting certainty who have been worried by the last interest rate rise, a fixed rate loan might be an appropriate choice, as it will protect the borrower against further interest rate rises for the duration of the fixed rate period. The new rates available on our Fixed Rate mortgage offer real competitive choice. We have also added an extra tier giving our customers even more flexibility and we have reduced the early repayment charge from 12 month’s interest to 6 month’s interest.”

Bank of Scotland International offers a comprehensive range of banking and savings solutions worldwide from its offices in Jersey and Isle of Man. Bank of Scotland International provides financial support to expatriates, international clients and the UK, Isle of Man and Channel Island communities, ranging from the simplest savings account in different currencies to longer term investment.

Bank of Scotland International is part of the HBOS group, which enjoys a Standard & Poor’s long-term AA credit rating and Moody’s Aa2 long-term credit rating.

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