Home prices rise 1.6% but analysts warn of downturn

The property market has seen its strongest start to the year since 2004, with average asking prices climbing 1.6 per cent in March, according to the latest Rightmove House Price Index.

But the positive start could quickly end as the upsurge in activity among first-time buyers disappears after the ending of the 1 per cent stamp duty holiday this week.

Miles Shipside, at Rightmove said: "For a first-time buyer it's already hard enough to raise the necessary deposit and now, as well as potentially losing between £1,250 and £2,500 in stamp duty exemption, asking prices for their target property types have increased by over £5,000 in the last year as well."

However, the positive property story is echoed in a new Ability to Buy Index, published for the first time today by Royal Bank of Scotland. It says first-time buyers' ability to buy rose 1 per cent in 2011. But the average UK first-time buyer must still save for 35 months to get a 10 per cent deposit.

Last week's launch of the Government's NewBuy scheme may counteract some elements of the removal of the stamp duty exemption. But as the scheme – which offers loans of up to 95 per cent loan-to-value (LTV) – is only available for newly built homes, it will not help existing homeowners.

It also will not be of much use in London and the South-east. Londoners must save for 45 months to be able to afford to buy, according to the RBI index. In fact London prices have continued to buck flat or downward trends in the rest of the country by hitting an all-time high. In Kensington and Chelsea the average asking price is now £2.12m says Rightmove.

Nick Hopkinson, at PPR Estates, warns against comparing London to the rest of the country.

"A continued shortage of home sellers, the annual new year burst of enthusiasm from agents, temporary relief from the euro crisis and the massively distorting effect on the national house price data of Millionaires' Row in the Royal Borough of Kensington and Chelsea have all combined to put a false gloss on UK house prices," he said.