The UK's biggest mortgage lender has predicted that house prices will not stop falling until 2025 as higher interest rates take their toll on the market.

Lloyds Banking Group, the owner of Halifax and Bank of Scotland, relieved investors this morning with news of a better than expected pre-tax profit of £1.9 billion for the third quarter. That was up 15% on the previous three months and more than triple the amount for the same quarter a year ago.

Like other retail banks, Lloyds has benefitted from successive rate increases by the Bank of England during the past two years. However, some of the advantages of this are starting to wane amid "expected mortgage and deposit pricing headwinds" as demand for home loans drops.

READ MORE: Scotland property: Average house prices pass £200,000

The group forecasts that by the end of 2023 UK house prices will have fallen on average by 5% over the course of the year, and are likely to drop by another 2.4% in 2024. This suggests the market value of residential property will be down by 11% from last year's peak when larger homes were in high demand in the wake of the Covid pandemic.

Santander, which has also today reported a rise in third quarter UK profits, is predicting a larger drop in British house prices of around 7% for the whole of 2023 followed by a smaller 2% decline next year.

The question is how this trend is playing out in Scotland where house prices are significantly more affordable than in the south-east of England. The answer isn't entirely clear.

Earlier this year the Halifax House Price Index showed a 2.2% annual increase in the price of properties north of the border, taking the cost of the average home in Scotland beyond the £200,000 mark in April. This was despite stalling markets in other parts of the UK.

READ MORE: Scotland houses: Prices and sales to fall, rents spike

Since then, however, most chartered surveyors have reported prices heading downwards.

Earlier this week surveyors Walker Fraser Steel released its house price index for Scotland which showed that half of the country is experiencing price increases while in the other half prices are falling. Property values overall in Scotland fell by a very modest £22 between July and August, but were still 0.6% higher compared to August 2022.

What is certain is that the activity across the market is subdued, with Walker Fraser Steel reporting a roughly 10% decline in the volume of sales compared to a year earlier. On balance though, it seems Scotland's housing market could be headed for a softer landing than in other parts of the UK.