Mortgage firms warn about dearth of first-time buyers

A summer surge in house prices will prove shortlived, the Council of Mortgage Lenders predicted yesterday.

Signs that housebuyers are struggling to afford properties in all parts of the country after a 10-year housing boom are acting as a natural brake on the housing market, it said.

First-time buyers are the worst affected. While younger residents of London and the south east have struggled with spiralling prices for several years, buyers in other regions have only recently found themselves priced out of the market.

CML senior economist Jennet Vass said: "The market has been boosted by low interest rates and higher earnings. However, indicators suggest affordability is now stretched and there is little scope for further significant house price rises.

"Despite the gloomy warnings of an imminent crash, the housing market appears to have begun a process of naturally correcting itself. While it is too early to be confident of a gentle slowdown, there are tentative signs that this is happening," she said.

Earlier this week figures from Halifax and rival Nationwide showed the housing market had found renewed vigour following a lull between February and May. House prices rose by 1.3% in August, giving an annual price growth of 19.1% - far stronger than analysts expected six months ago.

A spokesman for Halifax said that while there was strong underpinning for house prices with historically low interest rates and high levels of employment, the mortgage bank had seen a drop in first-time buyers in all areas of the country.

"Affordability for first-time buyers is becoming an issue in regions outside London and the south-east for the first time, and that will be the main brake on price rises," he said.

Alex Bannister, group economist at Nationwide, said the underlying growth trend in property prices remained downwards except in the north where many properties remained affordable.

The CML, which represents lenders that carry out 98% of mortgage transactions, expects the head of steam behind the recent price rises to largely evaporate followed by a return to slower growth.

Ms Vass pointed to falling transaction levels, which slipped to 300,000 in the second quarter of 2003 from an average of 370,000 over the past six years. First-time buyers usually make up well over 40% of the market, but over the past year this proportion has fallen to nearer 30%.