Mortgages

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By Alice Lilley

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Strong growth in London helped house prices to rise at the sharpest annual rate for one and a half years last month, according to market analyst Hometrack.

That's not good news for everyone, though. Research from Halifax, Britain's biggest mortgage lender, shows that public sector workers such as teachers and nurses cannot now afford to buy property in two-thirds of British towns.

London and the South-east are the most unaffordable areas, the bank said, but rising prices in other parts of the country have also begun to push property in northern England, the Midlands, the South west and Scotland out of reach for people in these professions.

In Gerrards Cross, Buckinghamshire, for example, house prices now average more than £600,000, or 23 times the salary of a typical nurse (£24,739). And an average home in London costs 9.5 times their annual income.

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There are still some areas where house prices remain within key workers' grasp. In Lochgelly, Fife, for instance, the average property sells for just £80,000. That's 2.7 times a teacher's salary (£31,262) or 3.2 times that of a firefighter (£26,511.)
But key workers could afford to buy property in more than three-quarters of British towns when Halifax conducted the same research in 2001, indicating the extent to which house price growth has outstripped wage inflation over the last five years.
This is particularly true in the South west, where property in all towns is now more than 4.46 times the average wage of key workers, up from just 15% of towns in 2001.

Martin Ellis, chief economist at Halifax, said: "Now it is difficult for key workers to buy the average house not only in the south of England, but also in significant parts of the Midlands, northern England, Wales and Scotland."
Key workers are not the only ones struggling to get a foot on the housing ladder, though, especially as the overall level of house price growth seen so far this year has surprised many analysts.

At the beginning of the year, Halifax predicted that prices would rise by 3%, while Hometrack forecast growth of just 1% and Capital Economics, a research company, thought the property market would slump 5% over the course of 2006.
But the most recent figures from Halifax show that prices jumped by an average of 2.6% during the second quarter of 2006 alone, despite the average amount paid by buyers in June falling 1.2%.

The Bank of England's latest mortgage approval statistics also indicate that the housing market remains healthy, with homeowners and buyers taking out 120,000 home loans in June, up 3,000 on the previous month.
And Moneyextra, a mortgage website, points out that the dip recorded by Halifax in June is probably at least partly due to the World Cup, which encouraged many househunters to put their plans on hold and could be one reason Hometrack's figures show renewed growth in July.

The only real cloud on the horizon is the increasing likelihood of an interest rate rise.
The Bank of England Monetary Policy Committee, which sets the base rate to which most mortgage rates are linked, will meet this week to decide whether to keep this at 4.5%.

Some members of the committee are expected to vote to push the rate up to 4.75%, but most economists expect it to remain at the same level - for now at least.

This is good news for those hoping to sell their homes as economists predict that even a small interest rate rise could cause the market to slow substantially.

More worrying, however, is that the committee is widely expected to vote to increase rates later in the year.
Howard Archer of independent analyst Global Insight said: "House buyers will be concerned by the very real possibility that interest rates could increase before the end of the year, as this would further stretch affordability.
"Even a small increase could have a significant dampening effect on housing market activity."

Fortunately for those hoping to sell their homes, fears about rising rates are being offset by a perception that the government's u-turn on making Home Information Packs compulsory for sellers will have a positive effect on the market.
The packs, which were designed to reduce the chances of buyers losing out on a purchase after shelling out for surveys and other checks, were supposed to become mandatory from next summer.

But critics argued that the cost of putting together a pack would discourage people from selling their homes, thus slowing market activity. Many also feared that they would create a "bubble" in the coming months.

Robin Amlot of Moneyextra said: "It's too early to tell whether the government's policy reversal will have a significant impact on the housing market in the near term. It could, however, mean that a potential bubble in the market has been avoided."

Find out what your house is worth at Yahoo!'s House Price Centre