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First-time buyers set to remain scarce

2004 is to be a game of two halves, said the Nationwide Building Society in a special report, with the first half categorised by increasing house prices and the second with confidence dampened by rising interest rates and weaker income growth.

First-time buyers would remain an endangered species as affordability deteriorates further in the face of higher house prices and higher mortgage rates, commented Alex Bannister, Nationwide's Group Economist.

The Price of an average UK property is forecast to rise 9% in 2004 but there will be less regional variation than in 2003.

The Northern regions are expected to see the highest price growth, at around 12%, as a result of strong labour markets and positive house price expectations.

London is forecast to be the slowest growing region for the second year running given stretched affordability. However, improved prospects for City jobs and supply shortages will keep house prices rising at around 6% in 2004.

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Forecast	2002	2003*	2004*
House price index (Dec on Dec % changes)	25%	15%	9%
London (Q4 on Q4 % changes)	21%	7%	6%
West Midlands (Q4 on Q4 % changes)	30%	17%	9%
North (Q4 on Q4 % changes)	27%	29%	12%
Sales	1.59m	1.39m	1.40m
* Forcasts

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Commenting on the forecast, Alex Bannister said:

"Given benign economic conditions, with real post-tax mortgage rates at a 20-year low and unemployment at a 28 year low it is no surprise that house prices will have risen by around 15% in 2003. However, real disposable income growth was the lowest since 1994, suggesting that homebuyers' expectations played an important role in boosting house price growth during the year.”

“In contrast, house sales fell back to 1.39m - with the fewest first-time buyers for two decades. 2004 is unlikely to see a significant rise in first-time buyers as affordability deteriorates further in the face of higher house prices and mortgage rates.”

"The housing market will carry considerable momentum into early 2004 and we expect house price growth to be biased towards the first part of the year. Later in the year, rising mortgage rates and slow income growth will dampen confidence. House price expectations are also likely to become more realistic, especially in the North where prices are currently rising at an unsustainable pace. We expect UK house price growth of 9% in 2004.”

"Recent years have seen expectations push house price growth above what economic conditions would suggest. A reversal or continuation in this trend are both plausible scenarios in 2004 and provide the most significant risk to our forecast.”

“In addition, economic imbalances remain in the UK, and US, with high private sector debt levels suggesting corporate and personal sectors alike may at some stage pull their horns in. It is unlikely that a small rise in interest rates would cause such a retrenchment since, even though households are highly indebted, most can cope with a modest rise in interest rates. A deteriorating labour market, therefore, remains the most plausible forecast risk."