First-timers shun house market

FIRST-TIME buyers are deserting the housing market, Britain's biggest building society said today.

Figures from Nationwide showed that last month there were 31% fewer first-time buyers getting onto the property ladder and the number for 2003 is likely to be the lowest for 20 years.

The survey provides further evidence that low-paid workers in London and the South-East are struggling to get a grip on the market and are being forced to live in rented accommodation or endure long commutes into the capital.

It also provides fresh evidence that the housing market is cooling, but the mortgage lender moved to soothe fears that property prices are on the brink of a damaging collapse.

Nationwide said the average price of a home rose by 1% to £128,251 this month but the annual rate of increase slipped to 17.9%. That is well down on the 26.5% seen six months ago and the lowest since May last year. A further slowdown is anticipated in the coming months.

The modestly weaker labour market has helped tame the property boom, but a sudden collapse in prices which some analysts have feared is unlikely to happen, according to the building society. It continues to expect house price inflation to end the year at 10%.

Alex Bannister, Nationwide's group economist, said: 'Price growth has already slowed since the end of 2002 and we continue to expect a further easing as a result of weakening pay and job prospects. There is every indication that the housing market is slowing without major problems.'

Nationwide played down concerns that the recent interest rate cut from the Bank of England would reignite the housing boom and heighten the risk of a crash. The Bank's monetary policy committee lowered the base rate to 3.5%, its lowest for 48 years.

Mr Bannister said: 'In itself, the 0.25% cut in base rates is unlikely to significantly boost demand for property given the weakening labour market trend. Given the current level of rates and the availability of attractive mortgage products, further reductions will probably have little on demand and house prices.'

Although the rate cut means mortgage repayments are slightly lower, the main obstacle - especially for first-time buyers - is the size of the deposit. In the past, first-time buyers put down relatively small deposits. However, prudence on the part of lenders and borrowers has meant that typical deposits are now higher. In the North of England, 11% is a typical deposit, but in central London 17% is more common. This works out at almost £30,000. Across the country, deposits are now typically 12% compared to 5% 20 years ago.

Today's report is at odds with some suggesting that property prices are stagnating or even falling. Hometrack, the residential property company, indicated yesterday that prices were unchanged this month for the second month in a row.

But Nationwide's survey chimes with that of Halifax, Britain's biggest mortgage lender, which reports steady, but slowing, price increases.