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05 July 2008 05:17 BST

Rising house prices

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With house prices rising steadily and a continual increase in interest rates affecting mortgage and loan repayments, first-time buyers are find it virtually impossible to get themselves on the property ladder, while many homeowners are finding themselves in the position where they simply cannot afford to move.

In response to the harrowing figure offered by mortgage calculators and the burden of prospective stamp duty and solicitor’s fees, a large portion of consumers are deciding to opt for conversions rather than sell-up.

Underground basement conversions are experiencing a rise in popularity as expanding families realise that they can virtually double their living space for a fraction of the cost of moving. In 2004, the average size of a basement conversion was an estimated 400 square feet. Three years later, with people using the space under their gardens and driveways for this purpose, the average has increased to around 700 square feet; this is almost the size of a one-bedroom flat.

2,787 homeowners, aged between 30 – 50 were surveyed, revealing that 75 per cent of them would rather take on an extension of some form than go through the costly and stressful process of moving.

The average cost of a basement conversion is around £150,000. Experts suggest that an undertaking of this nature could only be used to substantially increase the price of a property if it is already worth £750,000 or more.

This is only one solution to an ever-growing problem in the UK. House prices are currently at a record high, standing at 11 times the average wage, and continuing to do so despite the rate of borrowing increasing to 4.7 per cent. Lenders are also now prepared to lend up to five or six times a borrower’s yearly income which does mean that there are those who can afford to match this increase.

The National Housing Federation fears that house prices could continue to rise by as much as 40 per cent over the next five years. This prediction would place the average house price at £300,000 by the year 2012. They also state that in the last decade, house prices have risen by 156 per cent, whilst the average wage has only risen by a comparative 35 per cent.

The National Housing Federation wants to see the government honour its promises to build 3 million new homes by the year 2020, especially as waiting lists for housing have increased over the last five years by 57 per cent. This means that there are currently four million people on a waiting list for only 1.6 million properties.

Parents of first-time buyers are also finding themselves in the position of having to remortgage, using the equity in their homes to help get their children onto the property ladder.

Other predictions suggest that with rising interest rates not reflecting wage increases, Britons are struggling to meet mortgage repayments as it is; should the price of property continue to increase in the UK there are worries that fewer and fewer people will actually end up owning the homes they live in.

As house prices continue to escalate it inevitably becomes more and more important to find a mortgage that represents good value. There is consequently a greater demand on home buyers to be savvy about which mortgage they plump for. It can be a convoluted process but you can save yourself some time and hassle by consulting a mortgages and loans comparison site such as Beatthatquote.com. I’d also recommend that prospective mortgage customers use a mortgage calculator such as the one found on the Natwest site (you’ll find something similar on the websites of most major mortgage lenders or indeed this calculator on the Guardian website.) At the time of writing Woolwich and Natwest Mortgages appear to offer competitive deals. End of story

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Rising house prices

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