Record high demand for first-time buyer properties has pushed prices up by nearly 10% in the year.
Although property prices generally have slowed, fierce competition between first-time buyers and buy-to-let investors is forcing up prices in the sector of the market.
New figures published by property portal Rightmove today show UK asking prices hitting their highest ever level in October.
The average asking price is up 0.6% this month, or £1,715, to £296,549. That is 5.6% more expensive than a year ago.
This was fuelled by high demand for first-time-buyer properties, with prices up 4.9% on last month and 9.6% over the past 12 months, adding £16,105 to the average asking price.
Rightmove said this was sparking a vicious circle as high tenant demand persuades buy-to-let investors to go head-to-head with first-time buyers.
Many letting agents report ‘same-day’ rentals and little or no property to rent.
The number of first-time buyer properties coming to market, those with one or two bedrooms, is down 8% in the last year.
The slippage has been made worse because first-time sellers are struggling with second-step price gap.
Rightmove director Miles Shipside said: “There are signs of a slowing pace of price rises in some sectors of the market, with the overall October rise the lowest we’ve recorded at this time of year for five years.
“We still have another national average record however, as prices continue their upward trend.
“This is mainly being fuelled by the heady price rises of typical first-time-buyer homes."
Shipside pinned this on the shortage of properties coming to market with two bedrooms or fewer, combined with demand from both first-time buyers and landlords responding to "extraordinary" rental demand for smaller properties.
“This creates a vicious circle due to the limited supply of suitable properties for sale in this most active sector.
“Both investor landlords and first-time buyers looking to buy smaller homes are finding them in short supply.
“Competition is most fierce in this sector, with first-time buyers and buy-to-let investors going head-to-head for the same properties.”