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.

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