- The Observer, Sunday June 16 2002
First-time buyers should shun the housing market and rent until prices cool down, a leading expert warned last night.
Hugh Dunsmore-Hardy, chief executive of the National Association of Estate Agents, said many young people would decide to postpone buying their first property. 'If I was a first-time buyer, I would take that view.'
Dunsmore-Hardy's admission reflects concern about instability in the housing market. The Bank of England warned last week that prices were rising at unsustainable levels and interest rates would have to go up.
When the latest statistics on price inflation were published earlier this month, Halifax Bank of Scotland, the country's largest mortgage lender, said that prices were rising at record levels: 4.2 per cent a month and more than 18 per cent a year on average.
This week the Royal Institution of Chartered Surveyors will confirm that the market remained strong during May. The RICS reported last month that prices rose in April at their fastest level for almost two-and-a-half years. Its chief economist, Milan Khatri, said: 'The picture is of strong growth in house prices.'
He said estate agents were reporting a slight fall-off in inquiries, but househunters may have been temporarily distracted by the jubilee weekend and the start of the World Cup.
The Bank of England's warning caused a rush by speculative investors to bet on house price falls through City Index, a firm that runs a spread-betting service. It launched a property betting service last year and Friday was its busiest day yet. Most of the bets were on prices faltering from spring 2003, particularly in the north of England and Wales.
'People have taken fright,' said spokesman Tim Hogman. He said the trend to bet down London prices was less marked. 'There is still a problem of supply in London.'
Commentators are not convinced that the Bank of England's warning will cool the market without rate increases. Statistics released recently by Halifax Bank of Scotland showed that single first-time buyers on average earnings had already been priced out of the market in more than a third of 450 towns surveyed throughout Britain.
Anecdotal evidence suggests landlords are selling investment properties because they cannot obtain rents high enough to cover borrowing costs.
Dunsmore-Hardy said: 'At the moment there is a glut in rental property and you might rent at a level that allows you to put something by.'
An Association of Residential Letting Agents spokesman denied there was a problem with falling rental yields on investment property, but conceded there was a problem with two-bedroom flats in central London.
There are fears the collapse of rental yields and forced sales will trigger a collapse in the market. However, most commentators believe homeowners will not experience another Nineties-style crash. Interest rates will not rise sharply enough to trigger mortgage repayment difficulties.
Property consultant and economist John Wrigles-worth said there were too many factors in favour of higher prices, such as increases in single-person households and a rising population in London.
The NAEA will publish its latest assessment of the market over the next fortnight and Dunsmore-Hardy said: 'We will be forecasting that price increases will slow down in the last quarter of the year. Homes may be slightly overvalued, but at any point in a market cycle homes will be overvalued.'
