13 Aug 2013

Will rising house prices hit first-time buyers?

House prices are rising at their fastest since the 2006 peak, according to new figures. But is this good news for people trying to get onto the property ladder?

House prices mortgage property lenders

The number of would-be buyers looking to enter the market in July also saw the strongest growth in four years, in further signs that a recovery is “round the corner”, a Royal Institution of Chartered Surveyors (Rics) survey said.

The west Midlands and the north east experienced the biggest increases in buyer activity in July, according to the latest Rics UK housing market report.

Growth in buyer numbers was seen across the UK as the upswing in activity, which has been particularly concentrated in London and the south east, spread outwards, and a balance of 53 per cent more surveyors reported increases rather than falls in demand.

It looks like at long last a recovery could be around the corner. Peter Bolton King, Rics

As buyer numbers strengthened, prices rose across the country for the fourth month in a row, growing at their fastest rate since the market peak of November 2006, Rics said.

Looking ahead, a balance of 35 per cent more surveyors expect prices to continue to increase rather than fall, while 53 per cent more surveyors expect sales to rise over the next three months.

Peter Bolton King, Rics global residential director, said: “It looks like at long last a recovery could be around the corner.

“Growth in buyer numbers and prices have been happening in some parts of the country since the beginning of the year but this is the first time that everywhere has experienced some improvement.

“It is clearly good news that those parts of the property market that were struggling are at last showing some signs of life.”

Help to buy

Lenders, estate agents and property websites have been reporting big uplifts in activity this year following the launch of various government schemes to unblock the housing market.

More first-time buyers have been seen entering the market, and sellers also appear to be more confident about sticking close to their asking prices amid improved mortgage availability.

Chancellor George Osborne announced in the budget that the taxpayer would lend buyers with a 5 per cent deposit up to 20 per cent of the value of new-build properties worth up to £600,000 in a bid to kick-start the sluggish UK economy.

We are helping thousands of young people and families get on and move up the housing ladder Eric Pickles

Communities Secretary Eric Pickles said the initiatives are creating a “sustainable” boost in UK housing, as he unveiled figures showing reservations for new-build homes under the “help to buy” equity loan scheme had reached 10,000.

Mr Pickles said said the equity loan scheme was “giving confidence to house builders to deliver and build more new homes” and that housebuilding was now at its highest level since 2008.

Read more: George Osborne pledges help for homebuyers

‘Tough decisions’

Between October 2010 and October 2012, 319,000 additional homes across England were added to the supply, according to figures released by Mr Pickles’ Whitehall department, with more than 150,000 affordable homes added.

Repossessions were also at a six-year low and mortgage arrears at their lowest since 2008, officials said.

“This government’s package of measures to boost the housing market is working, with house building and housing supply on the up,” Mr Pickles said.

“The tough decisions we’ve taken to tackle the deficit left by the last administration and clear up the mess are now delivering a sustainable increase in housing and providing real help to hard-working people.

“With over 10,000 reservations in four months, it’s clear that the ‘help to buy’: Equity Loan is working well.

“By dealing with the big challenges, we are helping thousands of young people and families get on and move up the housing ladder, and Britain is building again.”

Read more: George Osborne outlines help to buy part two

Property bubble

However, some experts warn that the government’s schemes could come back to “bite”, and fears been raised that the measures could lead to a property bubble, with borrowers over-stretching themselves.

The ONS figures showed that the average price paid by a first-time buyer has risen by 3.9 per cent over the last year to reach £182,000.

Matthew Pointon, a property economist at Capital Economics, said: “Government boasts that their schemes to pump more credit into the housing market are now bearing fruit may soon come back to bite them, as housing costs become even more of a burden on stretched household finances.

“Meanwhile, more credit flowing into property means there is less available for the the part of the economy that really does need it – businesses.”

A study released by Halifax last month found that the typical house price paid by a first-time buyer is 4.26 times their annual earnings, well above an average of 3.23 over the last 30 years.

This is still way below a peak of 5.83 times earnings recorded six years ago, having lifted from a trough of 4.34 in 2009.

Read more: How 'bank of mum and dad' is helping homebuyers

Trapped in rental market

A report from property website Rightmove yesterday found that three-fifths (60 per cent) of people currently living in the rental sector still feel “trapped”, meaning they would like to buy their own home but do not think they can afford to.

Just under one third (31 per cent) of trapped renters said they had previously owned their own home but had returned to the rental sector in the tough economy.

Housing costs become even more of a burden on stretched household finances. Matthew Pointon, property economist

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “This will be a long, slow recovery.

“Much ground has been lost and transactions and lending levels are running at a fraction of what they were at the height of the housing boom.

“Government schemes such as ‘funding for lending’ and ‘help to buy’ are seeing a positive impact though, and we expect this to continue when the mortgage guarantee element of ‘help to buy’ is introduced in January.”