Banks urge caution on house prices

Posted: 27 Jul 2006 10:26:14 GMT

A lull in the housing market has been widely tipped by many banks as house prices become increasingly out of proportion with people's salaries.

The mortgage lender Northern Rock has added its voice to these claims. The company told the Times that it believes the peaking of house prices will fade over the next few months and that the market will stabilise.

Over a prolonged period house prices are expected to grow at around the same amount as wages.

Northern Rock stated: "We also expect to see house price inflation slow in the second half of 2006 and over the medium term be in line with increases in earnings."

The problem of house prices rising so sharply is that earnings do not rise to match the housing inflation. Thus people find themselves borrowing far above their means to get into the housing market. This is especially significant for first time buyers.

Adam Applegarth, chief executive for Northern Rock said: "The market as a whole will remain strong. First-time buyers are drifting back to the housing market and remortgaging has increased and is likely to stay at this heightened level."

It appears that the current house pricing climate is good news for mortgage lenders and is still in the process of a mini-boom.




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