Property prices went up by 2.1% on average in the past month, taking the annualised rate above 20%, and forcing Nationwide to up its full-year 2004 forecast just as economists got the news personal debt has topped the £1trn mark.
The average house price jumped to £154,299 from £151,524 in June, driven by continued price rises in the regions and a stronger labour market in and around London, sending prices up moderately in the Capital.
Fewer than 40% of first time buyers are now in the 18-30 age bracket, against some 60% just 10 years ago. The number entering the market each month is 40% down on two years ago, hindered, no doubt, by the fact a quarter of such first time buyers are putting down a deposit averaging £30,000.
News of the price increases comes as the Bank of England confirms lending to individuals in the UK has passed the £1trn mark, meaning people owe as much money as the economy generates in wealth each year.
An increase in interest rates therefore now looks certain when the Monetary Policy Committee meets in the first week of August.
Alex Bannister, group economist Nationwide, confirms that “July’s increase outstripped our expectation that prices would rise in the 0.5%-1% range for the rest of the year.”
”UK homes have already risen by 12% this year, so our forecast for house price inflation, which remains 15% for the time being, is likely to be reviewed over the next couple of months. The risks are clearly on the upside.”
Because of the latest inflation, the house price to equity ratio is now above levels last seen in the late 1980s before the last property bubble burst.
Many people view property as just another asset class, along with equities and bonds, Nationwide says. The implication, however, is if returns from other types of assets become more attractive, then all the buy-to-let investors could see prices fall as many of their ilk decided to reduce their exposure to property.
”More recently house prices have once again risen relative to equity prices, which in themselves are not obviously undervalued, suggesting that a slowdown in the housing market is inevitable and those expecting recent capital gains on property to persist are likely to be disappointed,” Nationwide says.
The number of first time buyers (FTBs) is likely to keep on decreasing, according to Nationwide’s figures. Increasing numbers are having to rely on family to stump up the deposit for a home, in turn forcing parents (usually) to withdraw equity from their own properties.
Average earnings of first time buyers in the age bracket currently stand at £36,000, against UK average earnings of £26,000, Nationwide says. Yet, even this higher earnings level would require five years of saving 20% of salary to scrape together the £30,000 deposit required in 25% of FTB cases.IFAonline
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