Housing boom slows as prices slide out of reach

Lender warns that the surging value of homes in the South-east is hindering first-time buyers trying to get on the ladder

The surge in house prices in London and the South-east has made it harder for buyers even to get a foothold on the property ladder, Britain's largest mortgage lender warns today.

The surge in house prices in London and the South-east has made it harder for buyers even to get a foothold on the property ladder, Britain's largest mortgage lender warns today.

The Halifax bank says a lack of new buyers has led to a sharp slowdown in price rises in the South. "This probably reflects the sharp rises in prices in the capital over the past year, which are making it increasingly difficult for buyers - particularly first-time purchasers - to enter the market," it says. In contrast, the North and the Midlands enjoyed a marked pick-up.

But the bank warns that hopes of an end to the North-South housing divide were faint. "There is little evidence that last year's rapid house-price growth in the South of England is more generally spreading out to the rest of the country," it says.

Across the United Kingdom, the price of the average home rose 3.2 per cent to £84,443, leaving an annual rise of 14.5 per cent. This is the highest annual rate as measured on a quarterly basis since the second quarter of 1989 - which was the peak of the boom in the Eighties.

The quarterly rise of 3.2 per cent, while still strong, was a drop from 4.4 per cent and 3.6 per cent seen in the last two quarters of 1999.

The slowdown was led by south-east England where prices rose just 1.4 per cent over the first quarter of 2000, a sharp fall from 7.9 per cent in the last three months of 1999. In London they slowed to 4 per cent from 8.5 per cent.

Meanwhile, the price of the average home in northern England rose 1 per cent, reversing a 0.6 per cent fall; in Yorkshire and Humberside it was up 3.1 per cent from 1.1 per cent; while in the North-west it picked up from 1.4 per cent to 1.7 per cent. The West Midlands also mounted a recovery, rising to 5.1 per cent from 1.9 per cent.

The southern slowdown will bring little relief to young workers and families trying to get a toehold on the housing ladder. While the average price of an semi-detached home in South Humberside was £45,700, in Greater London such a property would cost £211,300.

Prices in Greater London are 76 per cent greater than the UK average - giving the widest divide in the country since the survey started in 1983.

The housing industry is adamant that there is little threat of a repeat of a Eighties-style boom-and-bust because affordability - the ratio of house prices to average earnings - is low by historic standards. In the Eighties, buyers borrowed far in excess of their salaries and were trapped when prices fell and interest rates rose.

However, Halifax said that London was the one region where prices were above their 15-year average relative to earnings, "signifying that affordability has become an issue in the capital".

On an annual basis, prices in the capital surged 29.5 per cent in the year to March, and by 20.4 per cent in the South-east compared with just 4.7 per cent in the North.