UK house prices could rise 10%

Surveyors say numbers of unsold houses are rising

House prices could rise by 10% this year despite recent market gloom, according to one industry body.

The Royal Institution of Chartered Surveyors (RICS) found that although prices have been falling in recent months a recovery is in the pipeline for later in the year.

RICS thinks houses will continue to be a "safe bet" for investors.

But it said first time buyers were finding it increasingly difficult to take their first step on the property ladder.

Extraordinary heights

The RICS housing market survey - based on the views of estate agents and surveyors - has shown a slight fall in UK house prices over the past two months.

Many first time buyers, particularly public sector workers, are unable to save the substantial deposit required to bridge the ever-widening financial gap

Louis Armstrong, RICS chief executive

The falls have been led by the south east and London, the survey has found.

But RICS predicts that prices will recover during the second half of 2003 as confidence returns after the war in Iraq and continuing low interest rates make home ownership attractive.

Nevertheless, the RICS report contained much to make market watchers nervous.

It said that given the "extraordinary heights" prices had reached, they would have to fall by 30% to return to historical norms.

Although it added that this did not look likely in the near future.

Bigger deposits

Rising income inequality, combined with low levels of house building, were contributing to first homes becoming increasingly out of reach to key workers such as nurses, teachers and firefighters, RICS added.

These workers and low paid private sector employees were having to fund ever higher deposits in order to afford their first property.

On average first time buyers took out a mortgage which was 2.5 times their income, and during 2002 they put down an average deposit of £23,095 or 23% of the price, up from a low of just 10% in 1996.

"While the housing market is providing a healthy investment for some... many first time buyers, particularly public sector workers, are unable to save the substantial deposit required to bridge the ever-widening financial gap," RICS chief executive Louis Armstrong said.