Startling evidence that the recession is beginning to affect Scottish business emerged yesterday from Edinburgh, where solicitors and estate agents are laying off between 10 and 20 per cent of their staff because of the first downturn in the property market for 37 years.

Sales of houses, usually brisk in the autumn, have slumped by half to about 800 a month, according to the Edinburgh Solicitors' Property Centre (ESPC), through which about 80 per cent of properties are marketed. Prices have fallen by 7 per cent on this time last year and the number of homes on the market has grown by 50 per cent.

Figures published yesterday also showed that repossessions of properties in England and Wales in the second quarter of the year were up by 71 per cent since last year.

“I have been dealing in Edinburgh property for the past 25 years and I have never been in this situation,”

Willie Hunter, managing partner of Hunters Residential, a large estate agency, said. “Everybody is assuming that over the next six months the situation is going to get worse.”

As property prices boomed in recent years, so did the estate agency trade. Between 2003 and 2006 employment in the sector jumped by 35 per cent, from 5,000 to 6,700, said Dougie Adams, an economic consultant. Current cutbacks imply that about 1,400 people will lose their jobs.

Mr Hunter said that he has paid off about 10 per cent of his staff. His business is part of Gillespie Macandrew, a law firm. “If you are a firm where

80 per cent of your income comes from residential property and sales have dropped by 40 to 50 per cent, then the senior partners are going to have to look at making cuts,” he said.

Simon Rettie, managing director of Retties, another large surveyors and estate agency, said that he had cut staff numbers by 20 per cent. Sales of new homes had been particularly badly hit, he said, and were a low percentage of former numbers.

“It is not unreasonable to see properties down more than 5 to 15 per cent depending on the location,” he said.

The drop in the market has been offset a little by an upsurge in rentals, mainly by people who have sold their property and are renting until they see a chance to buy again. “Demand in rental has gone up by around 25 per cent, and rents have gone up by 5-20 per cent,” Mr Rettie added.

Neilsons, another big Lothians estate agent, is trying to avoid redundancies by putting its staff of 40 on a four-day week and cutting pay. Steve Spence, a senior partner, blamed media reports of property market “meltdowns” for sapping buyers' confidence. Citing attendances of about 200 at recent house-buying seminars organised by the ESPC, he said that there were enough first-time buyers to keep the market moving, provided that some confidence could be restored.

Others, however, were more pessimistic. Leslie Deans, senior partner in an estate agency of the same name, has laid off a quarter of his staff of 33. He expected prices to fall by 15-20 per cent by this time next year. “Any solicitor worth his salt should be able to negotiate a 5-10 per cent discount on asking prices now,” he said.

The downturn will hit other businesses. Mr Deans said that each property sale is reckoned to generate another £6,000 in spending as the new owners kit out their homes. The loss of 900 sales a month implies a loss of £5.4million in sales to retailers.

News of the job losses came as Alex Salmond made a presentation to senior figures in Lloyds TSB to argue the case for key decision-making functions and jobs to remain in Scotland if the bank's proposed merger with HBOS goes ahead.

Sir Victor Blank, the Lloyds TSB chairman and Eric Daniels, the bank's chief executive, attended the meeting in London, which was described by both sides as constructive. However, Tavish Scott, the leader of the Scots Lib Dems, criticised Mr Salmond, saying that he had given up on the campaign to retain HBOS as an independent bank with its head office in Scotland.

Mr Scott said: “This merger is not a done deal, so it is astonishing that Alex Salmond has thrown in the towel. The First Minister was last in and now seems to be first out on our campaign to keep HBOS independent.”

An estimated 17,000 HBOS jobs are based in Scotland, and it is feared that thousands of them could be lost if the merger goes through.

After the meeting Mr Salmond said: “My shareholders are the people of Scotland and, therefore, I was defending the interests of my shareholders.”

His comments came as rumours swept the capital that the struggling banking giant RBS is about to cut 16,000 jobs from its worldwide 170,000 workforce. Such a cut, which was denied by the bank, would involve about 2,000 of the bank's 16,500 Scottish workers being paid off.

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