Property prices on solid ground

Confidence, or the lack of it, influences everything from scoring a goal in a football match to believing that property prices won't crash as soon as you've got your hands on the keys to your new home.

Confidence, or the lack of it, influences everything from scoring a goal in a football match to believing that property prices won't crash as soon as you've got your hands on the keys to your new home.

Just as Arsenal striker Thierry Henry needs to imagine the ball in the back of the net if he is going to actually put it there so, too, do prospective house buyers need to believe that prices are going to increase ­ or at least remain the same ­ if they are going to buy a property.

But research issued by Cambridge Econometrics last week could dent that confidence. The research concludes that the gap between house prices and income is so great that the property market is in danger of collapsing.

It draws comparisons with 1989, when the market crashed leaving many home owners in negative equity. Such figures could frighten buyers who are committing to hefty mortgages.

But the situation isn't that straightforward. According to mortgage broker Savills Private Finance, the real measure of affordability is the relationship between average mortgage repayments and household income.

With average repayments about 17 per cent of household income, compared with 43 per cent in 1989, as a result of falling interest rates, the situation is nowhere near as dire. House prices may have risen to new highs but mortgages are also far cheaper. And the signs are that a low interest rate environment will be with us for a while. The record high that mortgage lending reached in April proves that buyers aren't running scared and that prices are affordable.

But while prices are unlikely to crash, the spectacular growth we've seen over the past couple of years, particularly in London and the South-east, is unlikely to continue. But even if this means we won't be seeing one-bed flats doubling in value in six months, buyers shouldn't be choosing properties with this in mind anyway. Far better to buy a flat or house because you want to live there and it suits your needs.

Even an investment property that you plan to let out should be bought with the intention of keeping it for 15 to 20 years. Over that time you will see an appreciation on your capital, which is more realistic than hoping for vast profits within five years.

Boarding party repelled

Equitable Life's annual general meeting passed without too many surprises on Wednesday in London's Docklands. Eleven rebel policyholders failed in their attempts to get elected to the board, while nearly 2,000 took the opportunity to vent their anger at the insurer.

But the real problem ­ getting guaranteed annuity rate (GAR) holders to agree a compromise ­ is unresolved.

Chairman Vanni Treves may take some comfort from the Mori poll finding that 53 per cent of GAR policyholders would waive their guaranteed annuities in exchange for an increase in policy value; it might not be enough. He needs 75 per cent of those by value of the policies and 50 per cent by the number who vote to approve. That's the real task still facing Mr Treves and the board, and it isn't a simple one.

* m.bien@independent.co.uk