Warning in surge in house prices

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House prices will continue surging by around 6% annually for the next five years unless more is done to tackle the “desperate need” for more homes, surveyors have warned.

The Royal Institution of Chartered Surveyors (Rics) warned that it is going to become even harder for people to even consider trying to get onto the property ladder unless more is done to address the lack of 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.

While Rics said surveyors broadly expect prices to edge up by 6% 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% 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% 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% annually, while in Scotland they are tipped to see an annual increase of around 4% in the coming years. These rises would take prices in these nations to around £178,000 and £168,000 respectively by 2020.

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% this year, in part due to the Help to Buy scheme.

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.”

Figures released separately today by the Council of Mortgage Lenders (CML) showed there has been strong growth over the last year in mortgage lending to both first-time buyers and home movers.

Some 22,200 home loans worth £3.1 billion were handed out to first-time buyers in February, which is a 55% increase in terms of the value of this type of lending compared with February 2013, the CML said.

Meanwhile, 26,200 loans with a total value of £4.7 billion were advanced to home movers during that month, marking a 38% increase by value compared with February a year earlier.

The CML’s latest figures also show that people are stretching their borrowing slightly further in order to make the jump on the property ladder.

First-time buyers typically borrowed 3.40 times their income in February, compared with a multiple of 3.39 in January.

Current low mortgage rates are keeping borrowers’ payment burdens low, the CML said. First-time buyers are spending around 19.2% of their income on mortgage repayments, which is only slightly higher than the recent lowest level of 19.1% recorded last year.

Toughened mortgage lending rules are set to come into force later this month which aim to prevent any return to irresponsible lending and make sure people can afford their repayments, even if interest rates rise.

Potential borrowers face more probing questions into their regular spending habits as a result of the new rules, which could revolve around what they spend on childcare, clothes, phone bills, hobbies, travel and season tickets.

The CML has predicted that people may find their mortgage interviews are split into two sessions instead of one in order to allow for more detailed questions to be asked.

Paul Smee, director general of the CML, said that while the industry is ready for the Mortgage Market Review (MMR) changes, there is “clearly potential for lending to be distorted temporarily over the coming months” while the new rules bed in.

He said: “Overall, we expect to see continuing growth in mortgage borrowing ahead, within responsible lending parameters, as the pent-up demand of the recession years finds an outlet in a stronger market.”