AVERAGE Scottish house prices are forecast to fall back by around 5% this year by Rettie & Co.

The upmarket estate agent also highlighted the fact that “landlords are continuing to depart the rental sector, leading to lack of availability and a spike in advertised rents”.

Rettie & Co characterised the housing market as “more complicated and expensive” in its summer report.

It noted that house sales were down 10% in the January to May period, compared with the same period last year.

It is forecasting that sales transactions will drop by around 15% over the course of the year.

John Boyle, Rettie & Co’s director of research and strategy, said: “When you add rising interest and mortgage rates to slower or negative house price growth, the picture is far from rosy for households in Scotland. However, the market is continuing to function even if at a slower pace. On the rental side, the reduction in supply combined with increased demand, set against an unhelpful legislative environment, is seeing a steep rise in advertised rents and a lack of availability.”

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Rettie & Co observed that, although sales have slowed, “there remains an appetite for people to sell”. The value of properties being listed is broadly comparable with last year, it noted, although it said sales would take longer in the slowing market.

Over the last three months, the supply of new properties coming to the market in Edinburgh is around 10% higher than the same period last year, its research shows.

In Glasgow, Rettie & Co noted “supply has followed the downward trend in registered sales, falling back by approximately 14% year-on-year".

The estate agent said the main challenge in most parts of the housing market is the rising cost of mortgages.

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It added: “The latest Bank of England decision to raise base rates to 5%, aimed at curbing inflation, will see mortgage rates rise further. The average cost of a mortgage on a Scottish property is now higher than the average rent.

“A period of slower or negative house price growth, with material and labour costs remaining high, will slow down housing delivery, likely leading to subdued new-build activity.”

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It highlighted tightness in the rental market.

The estate agent said: “Rent increases for newly advertised properties are being driven by strong competition for a smaller supply of available housing. With new legislation in the pipeline, there is likely to be a further reduction in supply, at a time of increasing demand, as landlords continue to leave the sector and new investors are deterred.”

It expects “prime markets to remain more robust” as supply remains below demand.

Rettie & Co declared first-time buyers “will find market conditions increasingly challenging”.