10 Apr 2014

‘Desperate need’ for homes as house prices soar

The lowest rung of the housing ladder is getting ever further out of reach for the average first-time buyer, surveyors warn.

The Royal Institution of Chartered Surveyors (Rics) on Thursday warned that it is going to become harder for people to even consider trying to get onto the property ladder unless more is done to to provide more homes for would-be buyers to choose from.

In the three months to March, surveyors sold an average of nearly 23 homes, marking the strongest house sales figure Rics has recorded for six years.

But strengthening housing market activity has fuelled concerns that property values are surging to unaffordable levels in places where the supply of homes is not enough to keep pace with the growth in demand, with prices being pushed up as more buyers compete for fewer homes.

London house prices

While Rics said surveyors broadly expect prices to edge up by six per cent a year for the next five years, its predictions also indicate that the gap between prices in London and the rest of the country is likely to continue to widen.

In London, which continues to attract strong interest from overseas buyers, prices are expected to rise by around 9.3 per cent a year, which would push average property prices in the capital to over £567,000 by 2020.

At the other end of the scale, prices in the North are expected to push up by 2 per cent annually, which would see average house prices there increase to just under £132,000 by 2020.

In Wales, surveyors predict house prices will rise by 4.9 per cent annually, while in Scotland they are tipped to see an annual increase of around 4 per cent in the coming years. These rises would take prices in these nations to around £178,000 and £168,000 respectively by 2020.

Rics also said that house sales climbed to their highest levels in six years as the market shows increasing signs of life across the country.

Overall, surveyors sold an average of nearly 23 homes during the three months to March – the highest amount seen since February 2008, the Rics report said.

However, the figure still remains below pre-housing boom sales – in March 2007 surveyors sold an average of 27 homes and in March 2004, the figure was 31.

Help to buy

More potential home buyers have been streaming into the market as a result of improving consumer confidence generally and government support schemes such as help to buy.

But critics of help to buy argue it has made the upward pressure on house prices worse as the supply of homes in the market has not increased as quickly as the supply of would-be buyers.

Simon Rubinsohn, Rics chief economist, said there is a “desperate need” for more homes to come on the market.

He warned: “Until this happens we’re likely to see prices continue to increase and it is going to be ever harder for many first-time buyers to conceive of ever owning their own home.”

Last week, a Bank of England report found that mortgage providers have become “significantly” more willing to lend to people with deposits of less than 10 per cent this year, in part due to the help to buy scheme.

‘Slipping away’

Some commentators have raised fears that rising house prices are making people feel under pressure to jump onto the property ladder, for fear of missing their chance.

Campbell Robb, chief executive of charity Shelter, said: “These figures prove what ordinary families already know: every rise in house prices means the dream of home ownership slipping away from more people, however hard they work and save…

“While some will be tempted to overstretch themselves in a last-ditch attempt to scramble on to the property ladder, many could quickly see their mortgage payments becoming completely unaffordable when interest rates finally rise.”