Money: Property ladder pulled away

In the past few weeks I have talked to several people in their late twenties who have good jobs but believe they have missed their chance to buy a flat. They reckon that London prices are beyond their reach now - and are going to keep on rising.

If someone who makes decent money has no hope of securing a decent sized home in central (or even suburban) London, then what hope for anyone else? According to Shelter's magazine Roof, the gap between London and regional prices has risen to a record level of pounds 76,500.

London may be soaring away, but last week's decision to push interest rates up a notch isn't going to do much to dampen the housing market anywhere else either. The underlying problem is an acute shortage of property, which keeps prices high.

Shelter suggests that prices nationally could go up by over 20 per cent in 2000. And last month's housing market report from the country's largest lender, the Halifax, showed the highest ever monthly rise - 2.8 per cent. Things are clearly hot as hell in the housing market.

The paradox is that mortgages are still eminently affordable in relation to our earnings. Many lenders have relaxed their earnings criteria in a bid to do more business - so, for example, they may advertise that you can borrow three times your salary to buy a home, but there are plenty of anecdotal stories of young professionals being offered loans of five times their annual earnings.

And, as long as rates stay low, there's nothing too wrong in this. But borrowers need to be confident that their repayments are not going to spiral out of control.

Mortgages in the UK are not like those anywhere else. As so often in financial matters, we go our own sweet way. Millions of us have loans linked to the base rate, which goes up and down like a yo-yo in response to the deliberations of the Monetary Policy Committee (MPC) and the vagaries of the mortgage lenders.

Meanwhile Europeans and (especially) Americans go in for competitively priced, long-term, fixed-rate mortgage deals. You can get a 15-year mortgage in the US for an APR of just over 7 per cent at the moment. A 30-year mortgage comes in at 7.25 to 7.75 per cent APR.

Even better, the US has a well-established system for offering reasonably priced mortgage deals to those on low and moderate mortgages. A Fannie Mae loan is offered to those wanting to borrow less than $240,000 (pounds 146,000) and rates and costs are kept as low as possible because the cash comes from a central fund.

If we are going to carry on living in an overheated property market within a low interest rate environment, then it surely makes sense for lenders to offer a hand to those who are going to have problems buying a home.

The only alternative for these people is to save cash for a deposit, hang on for a while, and keep their fingers crossed that in the long term we will be in for a period of falling prices. And put up with the nasty wallpaper in their rented flats.

ni.berwick@independent.co.uk

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee