The market

The mainstream press has appeared increasingly keen over recent weeks to talk up the possibility of a crash in the housing market. There may be nothing new in this, however papers from London’s Evening Standard to the Daily Telegraph have been able to draw on some heavyweight statistics. First there was the news from America that lenders had been badly stung by greedily lending to so-called “sub-prime” or risky homebuyers. Could it happen here? Then came the Office for National Statistics pointing out in its annual Social Trends survey that houses cost 204% more in 2005 than 10 years ago, but that peoples’ average incomes had risen by only 92% over the same period. How much further can people stretch?

Lucian Cook, residential research director at property agent Savills, thinks the situation is in control. He points to the latest statistics from the Council of Mortgage Lenders on first-time buyers as evidence that borrowers are heeding the messages from the Bank of England that the recent round of interest rate rises may not be over yet. “They show that 87% of first-time buyers used a fixed rate mortgage and that the amount they are borrowing is 90% of the price of their house. This is down from 94% in 1993."

Richard Donnell, director of research at consultancy Hometrack, is concerned about the rates at which people are fixing their mortgage rates. “There are rates out there for 2-3% for 18 months and then people are tied in for years after that. So long as people are being sensible then there shouldn’t be any nasty payment shocks down the road.”

A look at the bigger picture [see graph] provides similar reassurance that the UK market is still relatively stable. Although people are now borrowing more than three times their income to buy a home – the highest figure since 1974 – the percentage of this income that they spend on covering interest payments is 15.6%. This compares with a high in the last 20 years of 26.5% in 1990.