An analysis of last year’s property sales by the Office of the Deputy Prime Minister shows the typical first-time buyer in the UK had to stump up £109,336 to get on the property ladder. How affordable is this?

House prices climbed by 2.2% in March, taking the price of a typical house through the £150,000 barrier for the first time, to £151,467. House prices have hit their highest levels relative to incomes since records began in the 80s. The average home now costs 5.3 times average earnings, according to The Nationwide building society.

This is above the peak of five times income in the late 80s, which was followed by a crash which swiped 12% off average property values and brought the term “negative equity” into common parlance. Further growth is on the cards: “London property prices are expected to grow at around 10% in 2004, with more than 20% foreseen in the north and northwest,” says Nationwide spokesman, Alex Bannister.

In April, Northern Rock’s announced that it will now lend as much as 5.2 times income (compared to 3.8 times before) hence bringing the property ladder within reach of firs time buyers. Northern Rock is not alone in relaxing the restrictions on how much it will lend homebuyers. The Halifax, Yorkshire, Norwich & Peterborough and GMAC have all recently relaxed their criteria.

Higher income multiples will certainly fuel the market, but economists warn that this will make it more difficult for the Bank of England to moderate the pace of growth with rate rises. The Bank of England has already raised the base rate from 3.5% to 4% since November in an effort to cool the market, but the increases have had little effect, as the property market remains robust. Some economists believe that the Bank may now have to raise rates again, resulting in dramatic press headlines about high price falls as homeowners struggle to repay loans.

A growing number of financial advisors are now urging buyers to choose fixed-rate mortgages to protect themselves against future interest-rate rises. (Rates are forecast to peak at about 5% next year.) There are some excellent deals below 5% with the gap between discount and fixed-rate products starting to close. As we write, Newcastle Building Society has the cheapest two-year fix at 4.44%. (It also offers the cheapest two-year discount mortgage.) You can fix, on average, for terms running from 2 to 10 years (obviously, the shorter the term, the lower the interest rate). Fixing your repayments for 10 years certainly circumnavigates the fear of escalating repayment figures, but brokers warn that many longer-term products have high exit penalties. Nevertheless, for cautious or novice buyers, knowing that your interest rate won’t rise above 5.14% (the Britannia 10 year rate at time of going to press) is a real comfort.

All things to think about..