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News: Weekly News Round Up - First-Time Buyers Are Being Squeezed Out

Tue, 20 Oct 09

The extent to which first-time buyers are being squeezed out of the property market was revealed in latest National Housing Federation (NHF) figures released this week.

The NHF, which represents housing associations, estimates that the average price of a home in London is £362,000 despite a number of price falls over the last year. This means that a single, first-time buyer would require a salary of around £93,000 a year to secure a 90% mortgage at 3.5 times their salary.

The NHF’s Belinda Porich said: "These are astronomical prices and many people, especially young, first-time buyers can only dream of owning a home.”

The figures are slightly skewed as the capital has a larger than average supply of homes worth more than £1m, especially in central London.  However, the figures do give a useful insight into the problems first-time buyers face.

The figures show that the cheapest place to live in the capital is Barking and Dagenham, where the price of an average home is £197,630 and an annual salary of £50,819 is needed to afford a home.

The most expensive London borough to live is Kensington and Chelsea, where the average home is worth is £1,181,803, which would require an annual salary of £303,892.

According to the Royal Institution of Chartered Surveyors (RICS)’s latest survey of estate agents, prices are likely to rise in the coming months.

The survey has revealed that a lack of supply of homes is driving prices up and the net balance of agents reporting rises rather than falls in house prices is at its highest level since May 2007 – see Home News 14 Oct 2009.

Agents in London and the south-east of England are the most likely to report price rises, making life even harder for first-time buyers in the capital. In contrast, in Wales and Yorkshire and Humberside more agents reported price falls rather than rises.

While enquiries from new buyers rose between September and August the rate of increase in new instructions from sellers fell back in the same period, the survey also revealed.

Ian Perry, RICS spokesman, said: “A lack of supply is still underpinning the rise in house prices with new instructions to estate agents only edging up very gradually. 

“Despite the problems first-time buyers are continuing to encounter in securing finance, the level of enquiries from potential purchasers is increasing. This imbalance between demand and supply suggests that house prices will move higher in the near term."

Similar signs of recovery were revealed in Home.co.uk’s latest Asking Price Index, which shows that the mix-adjusted asking price for homes on the market in England and Wales increased by 0.7% over the month leading up to the October report.

Latest figures from the Council of Mortgage Lenders show that mortgage activity has picked up compared to last year, but is still at an historically low level.

The number of home purchase loans in August was around 53,000. This was 29% higher than August last year, but significantly down on the August average between 2000 and 2007 of 100,000.

The CML says that the mortgage market is now on a “two-speed setting” with new loans recovering slightly, while remortgaging continues to decline.

CML economist Paul Samter said: “House purchase activity has revived from its moribund state at the beginning of the year. It will be a drawn-out recovery process with seasonal ups and down.

“But remortgaging demand has fallen away in the low-interest rate environment and this is dragging down gross lending levels.”

The Association of Mortgage Intermediaries (AMI) says that a recovery in the housing market is now underway but warns this could be stifled unless there is greater competition in the lending sector. Its latest quarterly economic bulletin says that the major banks continue to dominate the lending sector, which reduces competition and “has kept deposits for mortgage products artificially high.” 

Robert Sinclair, AMI director, said: “The housing market recovery seems to be holding, but it is unlikely that we will ever return to pre-recession levels of lending. First-time buyers are still limited by the size of deposits required.”

He added: “The stability in prices we have seen in the last few months may have much to do with the limited supply of quality property coming on to the market. A serious concern now must be the number of people on base-rate linked default rates, who are effectively property prisoners for the foreseeable future, as moving would be economic suicide.”

 

See also: Halifax House Price Index, Asking Price Index, House Prices and Trends by Town and Postcode, Mortgages

 

 

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