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From The Times

July 25, 2008

Midsummer blues afflict the housing market

Another bleak prediction that prices could fall a further 30 per cent gives us more holiday blues - still at least there is Scotland

Barcaldine Castle in Oban, Scotland. For sale for £1.85m

Judith Heywood

Mortgage approvals are at a record low, first-time buyers are near extinction and sales are drying up even in bargain-packed auction rooms. These are lean times indeed for anyone who relies on the world of property for their wages - or just some diversionary delight.

We have become used, as August approaches, to an irritating summer lull descending, as agents and solicitors put the last touches on deals struck on homes that went to market in the spring. This year a slowdown is certainly being reported - but it's the familiar one that set in last year and is becoming ever more entrenched.

Househunters who last year would have retreated to hotel poolsides to regale fellow holidaymakers with smug details about their new trophy home are now more likely to spend their summer trying to muster reasons not to be morose about the deflated value of the house they cannot sell.

That's a task that gets harder each time another bleak prediction emerges - this week's most notable is courtesy of the economist David Blanchflower, who believes that prices may fall 30 per cent more from their current level. The agency network Movewithus also ventured to say that a staggering four out of five homes now on the market will fail to sell in current conditions.

For many homeowners, these dynamics are luring them into the role of reluctant landlord. But increasingly developers are also finding a consoling source of income in the booming lettings market - in which demand is up 30 per cent in a year. In their case this involves the reinvention of unsold investment flats as serviced apartments, which have found a ready market among cost-conscious travellers.

But regulation in this sector is scant and these de facto hotels are distressing some owner-occupiers who live next door. You may be able to pick out these souls on your holiday: they are likely to be among those looking most gloomy and preoccupied on the row of sunloungers.

Pity the poor agent

Estate agency windows are in danger of looking like those of high street clothes retailers, with banners desperately courting unimpressed passers-by with offers of “more stock added” and “further reductions inside”.

But my sympathy is with the agents. There is no shortage of data saying what happened in this region or that city last month, but such broad brushstrokes are of little help for those whose job it is to guess at which price a particular property on a set street will sell in a falling market.

Proprietorial owners rarely assist: having whiled away many happy hours in years past on online perusals of local prices, they remain reluctant to accept that their ambitions for their home were never more than notional. They reject agents' advice that a cut of 20 per cent from peak prices will ensure a swift sale. But, as Miles Shipside, of Rightmove, counselled this week, sellers must be brave enough to price aggressively at the start, rather than be forced into a dramatic reduction - or a drip, drip of small cuts - later. This ploy should help to avoid an increasingly common trap: that of buyers - faced with the emergence of gloomy news midway through a deal - demanding a discount from the seller. David Salvi, of Hurford Salvi Carr, advises holding firm when faced with a guzunderer: all too often the resulting discount, rather than reassuring a buyer, will convince them the market is worse than they had feared - and the deal will collapse anyway.

There's always Scotland

At least we property watchers can take comfort that there will always be a Scotland. In recent months it has provided a rare source of real cheer: despite a bumper 2007, Scotland has resisted the reversal in momentum that has afflicted equally outperforming Northern Ireland. The latest stats from Nationwide show that Scotland is the only region of 13 where property is still more expensive - by an average £8,972.46 - than a year ago.

The oil-fuelled boom in Aberdeen, where boutiques, restaurants and luxury car dealerships report no let-up in trade, should help to sustain prices. But there are also precedents: Scottish property values have traditionally held more steady than those elsewhere, ascending more slowly and remaining more affordable.

Gems such as Barcaldine Castle, pictured, at Benderloch, near Oban, illustrate the appeal. A rare habitable medieval castle - category A listed - built in 1591 for the chief Sir Duncan Campbell, the “Black Castle of Benderloch” has an impossibly romantic waterside setting, fairytale proportions and and deeply cosy interior. It's on with Savills and costs a mere £1.85 million - the price of a family home in a smart part of London. The value of prime London homes is subsiding faster than the rest of London and the UK, the agent Jones Lang LaSalle reported this week. With 9ft thick stone walls and two secret stairways, Barcaldine strikes me as just the place to pass an economic downturn.

judith.heywood@thetimes.co.uk