Homeowners may enjoy rising house prices but for everybody else there is little to celebrate, a leading mortgage broker has said.
House prices are set to rise 6% this year, according to the latest house price index from property portal Rightmove, which has tripled its original forecast of 2% across 2013.
But Ben Thompson, managing director at Legal & General Mortgage Club, said this is mixed news. "It is good to see growth in the value of prices over the course of the last 12 months, as this will contribute positively to the sentiment of consumers who own their own home and hopefully enable more property to come onto the market for sale.
"On the other hand, increases in prices will be less welcome for those living at home or in rented accommodation who are saving hard to buy their first home. Unless you are a homeowner, it would feel strange to celebrate another price rise."
Thompson would like to see a gentle increase in house prices for a long period of time, either at or below the level of inflation and wage growth. "We would also very much want to see a significant rise in the number of new homes being built in the right parts of the UK in the right way, to ensure housing supply meets housing demand.
"This would allow house prices to re-balance and normalise, and more aspirational first time buyers would be able to afford to buy their first home at a younger age than today's average of 37, which is distinctly sub-optimal."
Responsible lending is the way to curb excessive house price inflation, said Robin King, director at Move with Us, the residential property group. "Lenders should adhere to stringent lending criteria, stick to the basics and look at the experience of the borrower. If lenders are restricted to lending three-and-a-half times a borrower’s earnings, for example, property price inflation will only be driven by wage inflation.
"Housing bubbles are created by irresponsible lending practices. Historically, property prices have risen and in order to sustain them, borrowers demanded more money to buy properties with, so they were lent more money against their income. We’ve seen this happen under different guises such as self-certified mortgages, which required no background checks to qualify repayments and inflated house prices, and also in deferred interest rate mortgages in the 80s.
"Lenders could also carry out different background checks on top of assessing credit records to ensure responsible lending. Borrowers that have a history of making regular rental repayments, for example, tend to be more reliable as their lifestyle is naturally tailored to making regular mortgage repayments,” King said.
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