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Wednesday, 4 July, 2001, 07:27 GMT 08:27 UK
Is now the right time to buy?
By Sarah Toyne, BBC News Online's personal finance reporter
Soaring property prices have prevented many people from moving out of rented accommodation and into their own homes over the last few years.
Prices rose by as much as 30% in some parts of the country last year. In the capital, a minimum salary of £40,000 is now required to afford even a small one bedroom flat.
Latest house price figures from Nationwide and Halifax indicate that the housing market is booming.
According to Nationwide, house prices are rising at an annual rate of 9.3%. Halifax, the largest mortgage lender, has reported a rise of 9.7% over the last twelve months.
The figures are much higher than predictions made at the beginning of the year, when Halifax forecasted 4% for this year and Nationwide said that the market would grow by 7%.
John Wriglesworth, a property expert, believes that the market will be healthy for the next few years and that growth is likely to be in line with Nationwide's original forecast.
He says: "There is nothing on the radar screen to point to anything other than growth of at least 7% this year.
"All the market conditions, such as low unemployment, affordability and low interest rates combined with demographic factors, such as a high divorce rate, are all positive factors for the housing market."
Perhaps the most common concern, particularly among first-time buyers, is a fear that the current market will replicate the boom and bust of the late 1980s and early 1990s.
But while experts fight over whether the market is going up and by how much - most believe that we are unlikely to see a repeat of this scenario.
Lucy O'Carroll , head of macroeconomics at Royal Bank of Scotland says: "We haven't seen the severity of the boom this time around, and so we are unlikely to see such a huge bust."
In fact, while prices of properties might have soared, housing is relatively affordable - thanks to low interest rates.
According to the Halifax, first-time buyers are on average spending 20.9% of their income on mortgage payments. In March, affordability was 22%.
Back in March 1990, 41% of a first-time buyer's income was soaked-up by mortgage payments.
Should I buy?
Anyone who is thinking of buying a property should remember that it is a long-term investment. Spectacular gains similar to those witnessed over the last few years are unlikely.
Mr Wriglesworth says: "If you do not know where you are going to be over the next two years - maybe you will go abroad, get married or be relocated, then the answer is no, you should rent."
Experts advise home buyers to be more creative in their approach - look to areas close to city centres with good transport links, which are still relatively cheap.
It is vital to research property prices in the local area before you buy, so you do not pay too much. The Land Registry's website has regional breakdowns of property prices.
One major advantage of buying now is that interest rates are so low.
Jane Harrison of London & Country, a mortgage broker says: "Although there has been a withdrawal of some of the better mortgage products in anticipation of interest rates eventually going up, there are some good deals around."
If you decide to buy it is important not to overstretch yourself.
Some lenders have relaxed their lending criteria to woo purchasers, but borrowing more than you can afford will be crippling when rates do eventually rise.
It is best to opt for a fixed-rate or capped-rate deal. A fixed-rate mortgage will guarantee fixed payments for usually two, three or five years.
With a capped rate your mortgage rate will go up and down according to the base rate, but will not rise above a set amount.
All borrowers should steer clear of extended redemption penalties that tie you into an expensive rate for several years after the special deal has expired.
You should also avoid mortgages that charge mortgage indemnity guarantee (Mig), which will add about £1,500 to a £100,000 mortgage.
Mig is one of the most unfair types of insurance. It is a protection policy for the lender - against any shortfall if the property is repossessed or sold at a loss.
It will not protect you if you are unable to keep up repayments.
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