Mortgages

Message Boards Property Pensions Savings Utilities UK Stocks Investments clear all debts then save or both? Split in assets... Gold Shares Liquidity or Solvency? GaBumping when is the best time to SPEND View boards: Your Money UK Stocks Also on Yahoo! Finance Mortgages Insurance Loans Credit Reports Credit Cards Banking Savings Cut Your Bills Mortgage articles Can you trust a new build home? Save £962 On Your Mortgage Help Is At Hand For First-Time Buyers! House Price Falls: The Winners And Losers View archive Personal finance articles Three cheers for the credit crunch How much more will your holiday cost? National Savings - safe but not sexy Bradford and Bingley - should we be worried? View archive Investment articles Asian growth to offset US slowdown A mixed first half Pennies from heaven? A return to basics View archive

By Alice Lilley

|

|

|

The average price of a home in England and Wales is now close to £200,000, according to the latest figures from the Land Registry.

It found that, as the number of property sales jumped 25% year on year during the second quarter of 2006, the average price paid also increased by 7.71% - pushing typical values up to £199,184. The north of England showed the highest overall increase at 11.1%, although the region still has the lowest prices in the country at £137,861.

At the other end of the scale, prices in the South east rose to £236,915 - an increase of just over 6%. And East Anglia experienced the slowest growth, with prices climbing just 4% to £181,925. Even in these regions, however, house price inflation is still outstripping wage growth, giving rise to concerns that an increasing number of people will be priced out of the housing market.

In some areas of the country, that is already the case. In London, for example, the average cost of a home is already £317,679, more than a third higher than the national average and about 10 times the typical salary in the capital.

But statistics from the Council of Mortgage Lenders (CML) reveal that first-time buyers are continuing to flood into the market, with the number of first-timers taking out mortgage in June hitting its highest level since December 2002. This is despite the fact that they are having to take on the highest ever income multiples, as the average buyer now spends 3.21 times their income on their first home.

The CML believes that help from parents and grandparents is one of the main factors allowing first-time buyers to step on to the first rung of the ladder.

Michael Coogan, director general of the CML, said: "It's interesting to see that even though average first-time buyer income multiples are the highest on record, first-time buyhers are still finding ways of getting on to the property ladder.
"It is highly likely that more and more young buyers are turning to parents and grandparents to help them raise the deposit for their first home."

Mortgage lenders are also helping by using affordability measures, rather than the traditional salary multiples, to decide how much to allow people to borrow.

Buyers will not be able to keep up with house prices forever, though, particularly as the Bank of England has now increased the base rate to 4.75% - piling the pressure on homeowners with variable-rate mortgages.

Fionnula Earley, a housing market economist at Nationwide building society, said: "We expect some softening towards the very end of the year, mainly due to affordability, but also reinforced by the surprise increase in interest rates, which can do nothing other than add caution."

Even now, prices are not rising across the board. Property website Smartnewhomes recorded a 1.6% drop in the price paid for new homes in July, due mainly to an oversupply of apartments coupled with demand for family homes.

David Bexon of Smartnewhomes said: "The recent fall in the price of a new home was inevitable as the summer months always prove quieter. The unusually hot weather experienced this July only intensified the situation, with even more buyers putting off viewing properties in favour of enjoying the sunshine. But I am confident that we will see a return to a buoyant market before the autumn."

The latest government statistics also show house price inflation slowing from 5.6% in May to 5.2% in June.

This has not, however, stopped housing market analysts such as Nationwide and Halifax raising their house price inflation forecasts in recent weeks. Nationwide, for example, has put its prediction for the year up from between 0% and 3% to 5%.
Earley said: "The resilience of the market in the face of deteriorating affordability suggests there is still enough demand to support prices."

Estate agent Your Move believes that househunters' unwillingness to put their own homes on the market is one of the main factors driving house price growth.

Its figures reveal that about 1.5 million new buyers registered with estate agents across the country last month, but that only 633,000 properties are up for sale.

David Newnes of Your Move said: "While the number of active buyers has reached a record high, a reluctance to put their own properties on to the market has resulted in an acute shortage of supply. With too many buyers chasing too few sellers, the pressure for property prices to rise further will only intensify.

"Buyers are mainly focusing on securing a new home before putting their own on the market because they are concentrating on what they believe to be the more difficult task in the present supply-starved market. But this just exacerbates the continuing shortage of houses on the market. It's a catch 22 situation."