Most news updates focus on the housing market as a whole rather than specific areas of the country. However the property market in Aberdeen on the east coast of Scotland may soon be affected by the local oil market. As you may be aware, oil prices are falling steadily and while the link may at first seem tenuous, this is set to have a potentially-devastating effect on the local housing market.
How much are oil prices falling by?
In recent years prices were settled around $100 a barrel. However last July they were down to less than $50 a barrel. Before this nosedive occurred, many people bought homes in the area and got jobs in the industry. The belief was that the oil industry would continue to boom, but recent events (and prices) have shown this is far from being the case.
Why might this situation affect the housing market?
There was a period in which homes in Aberdeen were in high demand. This meant many people were doing all they could to get a mortgage on the property they wanted. This is borne out by statistics that point to a 42% rise in risky mortgages in the Aberdeen area since 2010. The statistics are based on criteria provided by the Bank of England that make it easier for people to determine whether a particular mortgage is risky or not. The figure for Aberdeen is far higher than those seen in other parts of the country. The figure for Scotland as a whole is just 2% by comparison.
The increasing troubles seen in the oil industry have had an immediate effect on employment in the area. Some projects that were previously set to go ahead have been cancelled, while staff cuts have already been made by some companies in the sector.
This in turn has a knock-on effect on the ability people have to keep up with their mortgage payments. We already know a significant percentage of mortgages taken out in the Aberdeen area in recent years are classed as risky. This means there is a heightened chance that more people could run the risk of falling behind on repayments and potentially losing their homes to repossession in coming years.
Negative equity might also rear its head
While the challenge of meeting mortgage payments might be of more immediate concern to those in the oil industry who have lost their jobs (or may do so in the future) there is additional concern for every mortgage holder. If property prices in Aberdeen were to fall as a direct result of oil industry woes, there is a significant possibility of negative equity becoming a reality for many.
As we can see, the fate of the oil industry in Scotland may well have significant effects on the housing market as well. Those with particularly risky mortgages will doubtless be watching closely to see what the potential outcome could be for them in the months to come.