Big rise in borrowing sparks affordable housing fears
30/11/2006

North West mortgage brokers who have seen borrowing rise by 130 per cent predict a first-time buyer crisis as property price hikes continue to outstrip wage rises.

The warning comes from DTE Risk & Financial Management Ltd, where the value of mortgage transactions has risen from £2.17m in the second quarter of 2005 to £4.96m in the corresponding period this year.

Since the firm's Mortgage division was launched two years ago, it has handled borrowing worth more than £25m, and expects demand will continue to gather pace as the funding gap threatens to become unbridgeable.

"Since 1993, the average UK house price has increased from just over £50,000 to nearly £170,000. If this trend were to continue, the average house price in the UK would increase to over £575,000 by 2020," comments DTE Mortgage broker Phil Whitworth.

His pessimism is underscored by a study by the Halifax, which revealed key workers would struggle to purchase property in 339, or 65 per cent, of 519 towns surveyed.

"Due to statistics like these, more and more people are realising that the housing market is not slowing down and that there is a danger they will be priced out of the market if property values continue to outstrip wage rises, as seems likely," says Whitworth.

The impact of buy-to-let investors has fuelled demand which, combined with housing shortages in some areas, has resulted in property prices rising at their quickest levels since February 2002.

"Our experience suggests that the first-time-buyer market is still buoyant, but is getting tougher for people looking to purchase their first home. Family or builder-gifted deposits are helping this group to get their feet on the property ladder, while lenders are increasingly lending up to five times the income of borrowers to enable people to buy property," comments Whitworth.

"The Bank of England's decision to increase its base rate to five per cent means an increase of around £29 per month to people with an average variable rate mortgage of £140,000. We believe this will spark greater demand for our services as people look to reduce their monthly outgoing.

"Meanwhile, the re-mortgage market is very busy as savings of up to two per cent can be achieved on standard variable rates. On the average £140,000 mortgage, this could represent an annual saving of £2800 on interest," adds Whitworth.