Scottish housebuilders fear that their affordable housing business will be hit if, as expected, it is decided that housing grants for the sector do not comply with European Union rules on state aid.
Housing agency Scottish Homes has put its Grant for Rent and Ownership scheme, which funds the building of homes on estates, under review. The move follows a European Commission clampdown in December 1999, and a 14-month legal consultation process.

David Hodgson, land manager at Stewart Milne Homes, predicted that the scrapping of GRO would have a significant effect on housebuilders.

He said: "It's going to leave a big chunk out of the market for people with limited resources. It has filled more and more of a funding gap. It is a good mechanism and it will be a loss." Hodgson said that at its peak the GRO scheme had funded about 20% of its work in the affordable housing sector, although this had fallen to 5% in the past year.

Persimmon Partnerships technical co-ordinator Alistair Sweeney said it was inevitable that the lack of business would filter down to developers.

He said: "The amount of work we do under the GRO grant varies from year to year but this is obviously going to affect Scottish Homes' programme, and that will affect developers." Scottish Homes emphasised that all GRO-funded schemes that had begun or had committed funding would be allowed to continue. It said that, of its total development budget of £206m, GRO grants made up £20m.

The European Commission found that the UK's grant awarding scheme, the Partnership Investment Programme, was anti-competitive in December 1999.

A lengthy legal review was then carried out to decide whether the ruling would make the GRO scheme illegal.

A spokesperson said: "Since it was drawn to our attention, we have been trying to seek clarification of the issue. We don't know how long the review will take, that is something to address in the short- to medium-term future.

"We deal with around 50 housebuilders and developers in total and have contacted them all. We have kept in touch with them and there will be further communication."