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MILLIONS WILL SEE PROPERTY VALUES
LEAP £20,000 A YEAR
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.
Suffer
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 propertyflnder.com, 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
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