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Text from article of 18/07/06

HOUSE prices are set to rocket by more than half within six years in a boom that will see the average cost of a home top £300,000.

The increase is great news for millions of home owners who will see record equity in their properties, with average prices climbing from £195,000 to £303,900. Values will increase annually by around £20,000 from this year, according to the National Housing Federation. In 2012 the typical home is likely to cost almost 10 times the predicted average annual salary.

But while owners can stand back and watch as the biggest investment of their lives soars in value, first-time buyers already struggling to get on to the housing ladder will find it impossible to get a conventional 25-year mortgage. That increases the likelihood of a radical overhaul of Britain’s mortgage industry raising the spectre of Japanese-style 100-year loans.

David Orr the federation’s chief executive, said: "Our report spells disaster for tomorrow’s first-time buyers, who will find it increasingly difficult to afford a place of their own. We are already in a housing crisis and things are getting worse. High house prices are already having a disastrous effect on local communities. Over the next six years we’ll see home ownership being pushed further out of the reach of middle-earners and even those on relatively high incomes."

“Young working couples, key workers and people on low incomes have little chance of fulfilling their home ownership dream without financial support from parents or the state. “This can have serious social consequences for the birth rate, for keeping essential public workers in high housing cost areas, for Government expenditure and for the competitiveness of UK business.”

The forecast of the £300,000 house was based on an assumption that interest rates would average about 4.5 per cent for the six years to 2012, based on analysis by the independent Oxford Economic Forecasting. According to OEF's analysis, there is enough spare capacity in the economy to allow growth to continue without triggering the mortgage rate rises that would disturb property market.

It noted that in more than 10 per cent of local authority areas in England, average house prices are already more than 10 times local incomes. But with earnings expected to grow between 4.1 per cent and 4.4 per cent a year over the period significantly less than house values property experts welcomed the figures while sympathising with younger would-be buyers.


Russell Jervls, managing director of estate agents haart, said: "This projected growth is good news for existing home owners but the buyers who are not yet on the property ladder will suffer as average house prices move ever further out of their reach."

He warned there were long-term implications for the booming property market. "The long-term stabifity of the housing market cannot be sustained without first-time buyers," said Mr Jervis. "We can expect to see parents remortgaglng to release funds to give their kids a deposit to buy their own homes. Lenders will not lend almost 10 times salary; so younger buyers will need even bigger deposits to qualify for a mortgage."

A deposit of five per cent on £300,000 would be £15,000. That means monthly payments of £1,682 on the usual 25-year-repayment mortgage with an interest rate of 5.1 per cent on a loan of £285,000.

Andy Wiggans, director of mortgage products at Bradford & Bingley, said: "Rising house prices are certainly good news for home owners. However, banks and building societies will have to become increasingly innovative in their product development to help firsttime buyers, while making sure loans remain affordable. We will see more mortgages with longer repayment terms and flexible criteria such as specialist mortgages for professionals, shared equity and loans for friends buying together." In Japan, where property is extortionately expensive, 100-year mortgages are not unusual and they are passed down on the death of parents to chilthen, then to grandchildren.

The OEF report also noted that 154,870 new homes were built last year despite the Government's projections that an average of 209,000 a year are needed to satisfy demand over the next 20 years. Nicholas Leeming, director of, said: "The same Government that predicts Britains need of 200,000-plus new homes a year is also responsible for the chaos in planning regulations that prevents these homes being built. We need more family homes and fewer flats. Without adequate new supply, prices will inevitably march upwards. Our research shows that buyers and sellers are firmly in agreement on the outlook for prices they think theyre going to increase."

The National Housing Federation's Mr Orr appealed to the Treasury to double the supply of affordable rented accommodation, and called for reform of the planning laws to speed up the delivery of affordable homes in mixed communities.

The federation's report referred to the Governments target of 200,000 new homes a year but warned: "In the interim, we will continue to create an even larger shortfall of housing and struggle to create truly sustainable communities."

House prices were also being distorted by an increasing volume of buy-to-let. The OEF concluded that, with short supply and high levels of consumer confidence, there would be nothing to stop the average house price climbing above £300,000.

Average house prices have risen by 139 per cent since Labour came to power in 1997, but earnings have risen by 24 per cent. More than 115,350 mortgage repossession proceedings were issued in 2005, a jump of 48 per cent on 2004.

The number of households wait- ing for a home on housing registers is more than 1.5million, a rise of nearly 50 per cent since 2000.


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