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MONDAY 20TH JUNE 2005  UK HOUSE PRICE SEVEN YEAR PLATEAU PREDICTED House prices could remain static for a number of years while the market waits for first-time buyers' incomes to catch up with the cost of property. That’s the view of property website Rightmove who said today a 'price plateau' may last as much as seven years while sellers wait for first-time buyers to catch up. This year’s traditional 'spring bounce' in asking prices has ground to a halt says Rightmove. Sellers have belatedly realised that buyers are unwilling or unable to pay ever-increasing prices. According to Rightmove we have now seen two consecutive months of very modest rises in asking price rises. Lack of demand at these price levels has applied the brakes firmly to property asking prices. The 0.3% national average rise reported in May dropped back to 0.2% this month. In 2004 it took successive interest rate rises in July and August to force sellers to control their rising expectations on price. This year optimism has evaporated early without the influence of external pressures such as interest rate rises. The annual rate of increase is down from 4.9% to 2.4% and is headed towards 0%. However, with few sellers in financial distress and interest rates rises modest compared to the crashes of 1974, 1980, and 1990, Rightmove believes this represents a ‘soft landing’. Prices are likely to remain static rather than fall. Increases in real wages will now begin to erode the so called "affordability gap" that has stretched or removed large numbers of classic first time buyers from the market. However it is set to be a long haul. First time buyers are key to the long term health of the property market, says the firm. Relying solely on current levels of wage rises, it will take around seven years for average first time buyers’ affordability to return. Only then will we see transaction volumes return to normal levels. But reductions in interest rates could still make a big difference. A drop of 1% in interest rates, coupled with continuing strong increases in real wages, would bring affordability back into line in just four years rather than seven. "Having had it so good for many years, it’s now payback time for the property market" comments Miles Shipside, commercial director at Rightmove. "As many sellers are refusing to part with gains they have made, buyers are forced to make up the affordability gap." "The reality is it will take seven years of static house prices and wage inflation to bridge this affordability gap. In the meantime we should expect lower sales volumes for several years as the market waits for buyers to play catch-up." In the absence of falls in house prices or interest rates, first time buyer affordability may be assisted by parental help, shared ownership initiatives by mortgage lenders or subsidised mortgage schemes by the Government.

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