House prices in London and the South East will increase modestly during 2004. Following a period when the capital 'paused for breath', house prices in the London 'mainstream market' (properties up to £250,000) are expected to grow by approximately 8% during 2004 – around the same level seen in 2003, but still below the long term regional average (10%).
High levels of employment, low inflation and a strengthening UK economy will continue to underpin the housing market. Mortgage payments remain low in relation to earnings and currently represent around 14% of gross earnings for a typical homeowner. We anticipate that UK bank base rates will increase during 2004 and end the year at around 4.50%. Assuming a base rate of 4.50%, mortgage payments will represent approximately 16% of gross earnings – very good affordability levels.
The cost of owning and running a home continues to significantly increase. Even though mortgage rates have been at 50 year lows, the cost of running a home has risen very significantly. Separate research by the Halifax to be released next week shows that between 2001 and 2002, the cost of owning and running a house has risen four times faster than the rate of inflation. During this period, the figures show that the average homeowner spent, including mortgage payments, £5,604 on owning and running their home. We forecast that the true cost of owning and running a home will continue to rise quite significantly during 2004 as large council tax increases, coupled with hefty rises in utility bills, impact homeowners right across the UK.
First time buyers will continue to face difficulties getting a foothold on the housing ladder. Traditionally the problems first time buyers have experienced trying to get onto the housing ladder have been confined to London and the South East. We are predicting that due to the very significant house price growth experienced in the Midlands and the North over the last 12 months, the first time buyer problem will extend over significant areas of the UK by the end of 2004. As a result, the number of first time buyers entering the housing market during 2003 is expected to be at the lowest levels since records began in 1974. As house prices continue to increase above the rate of earnings, the number of first time buyers entering the market is expected to continue falling during 2004.
Mortgages and Consumer Credit