By Jonas Crosland , 01 May 2012
Living and working in the south east of England, it is easy to forget that when it comes to the housing market the rest of the country is somewhat different. London and the surrounding areas are leading the way forward, with prices slowly edging ahead, while areas such as the north east and Humberside are still seeing prices in decline. London house prices were up 0.3 per cent in April, according to Hometrack, but nationwide average prices were up just 0.1 per cent, half the rise recorded in March.
But I'm wondering whether prices in the south east are getting a bit too pricey, too. My daughter has just bought a one-bedroom flat in Greenwich - well it's nearer to less fashionable Deptford - for a cool quarter of a million. Actually, she has only bought 30 per cent of it because that is all she can borrow, and has to pay rent on top. Okay, so you get a lovely view of the London Marathon once a year, and you are ideally placed for the Olympics, assuming you want to be. But her flat is one of the cheapest available. And, believe me, a quarter of a million pounds is cheap when you consider that the average property price in London now stands at an eye watering £460,000.
Move out a bit further, well about 32 miles further, and there is a brownfield site in Strood, Kent, where one housebuilder is going to build three-bedroom houses that start at £317,000. Now, this is a good hour and £3,000 a year from London by train, and the site is conveniently situated between the railway line and a collection of static caravans with all the attendant detritus. I wouldn't live there if you paid me.
And there are indications that the rising price trend may be about to change. Of course, there is a steady stream of overseas buyers for properties in London - some, according to an estate agent friend, with suitcases full of cash - but these are people with a lot of money who are not worried about stamp duty increases so long as they can buy a nice flat in a secure environment for their offsprings attending university. But, more generally, demand in April was also boosted by the traditional spring buying spree and in March there was also the rush to complete before the end of the stamp duty holiday. New buyer registrations may have risen by 25 per cent in the past three months, but as the impact of these short-term drivers is dissipating, so demand is starting to wane. New buyer registrations in April, for example, were up 2.1 per cent compared with a 4.4 per cent increase in March.
And there are more houses to choose from because after a 3.6 per cent increase in March, supply accelerated by 4.8 per cent in April, according to Hometrack, lifting supply by 19 per cent over the past three months. So it follows that if demand is slipping and supply is increasing the combination will put downward pressure on prices.
And it might not be advisable to count on the string of incentive schemes to lead first-time buyers up the aisle. They look good in principle but not too good under closer scrutiny. The NewBuy guarantee scheme, for example, provides limited indemnity for mortgage lenders, underwritten jointly by the government and housebuilders, so long as they forward 95 per cent of the cost of a new home. Rates vary, but Halifax is charging a two-year fixed rate of 5.99 per cent, provided you stump up £999 for the arrangement fee. If you can't find the money for that, then the rate goes up to 6.39 per cent. NatWest offers a cheaper deal - two-year fixed at 4.79 per cent or five-year fixed at 5.49 per cent, both with a £499 arrangement fee, but these have already been jacked up from the bank's original package.
Housebuilder Persimmon has already blown a raspberry at the idea, with chief executive Mike Farley admitting that the interest rates charged are simply too high. True, the scheme gets round the biggest hurdle in that first-time buyers no longer need to save up as much as 25 per cent of the purchase price as a deposit. But the trend towards house prices weakening brings further problems. New-build houses typically carry a 5 per cent price premium over 'second-hand houses', which means there is very little cushion before new buyers find themselves in negative equity. Now this doesn't matter as long as you keep up with the repayments and you don't want to move or renegotiate your mortgage. But with the economy bumping along the bottom and showing no sign of improvement in the near term, potential first-time buyers might well decide to sit on their hands. And that will only put further downward pressure on prices.
And the picture for the 6m homeowners with a standard variable rate mortgage is pretty grim, too. The average mortgage rate is 4.8 per cent, but seven lenders including the Halifax and NatWest have raised their rates by 0.5 percentage points, blaming the rising cost of wholesale money and the need to attract savers by offering higher interest rates. Higher rates may also start to affect people's ability to pay their mortgage - according to Which?, 11 per cent of households said they couldn't afford the mortgage if it rose by just £100 a month. The consequence could be another uptick in the number of repossessions, with the Council of Mortgage Lenders expecting the number of people handing back the keys to their properties to climb 22 per cent this year to 45,000. That may not yet be as bad as the height of the recession in 2009, when repossessions hit 47,900, but it's hardly supportive of higher prices either.