Nationwide Building SocietyThe latest Nationwide House Price Index figures shows prices rose in January by 0.5%, whilst remaining unchanged compared to the same time 12 months ago.

According to the UK’s largest building society the average house price is now £162,245.

Although some specific concerns about the lack of first time buyers have been raised by the Nationwide, there also looks to be some more optimistic signs.

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Robert Gardner, Chief Economist at the Nationwide, commented: “UK house prices increased by 0.5% in January, though prices were unchanged compared with January 2012. While activity in the housing market remains muted by historic standards, there have been tentative signs of a pick-up in activity in recent months. The Funding for Lending Scheme has achieved some success in bringing down mortgage rates, with some signs of a pick-up in lending activity.”

“Hopefully, the momentum will continue to build in the months ahead, though much will depend on whether the wider economic environment improves. Progress is likely to be relatively slow on that front if recent trends are any guide, with the UK economy shrinking for the fourth time in five quarters in Q4 2012.”

First time buyer concerns

In their latest report the Nationwide highlighted some specific concerns over first time buyers, whose numbers have fallen significantly since the financial crisis. Although first time buyers still make up about 40% of all purchases, the number of first time buyer applications has dropped from 32,000 in the month prior to the financial crisis to around 20,000 per month now.

First time buyers are often seen as the lifeblood of the housing market, kick starting property chains and providing a boost to the wider economy with associated purchases, such as furniture and ‘do it yourself’ items.

Despite the slump in first time buyer numbers, the Nationwide again believes that there could be cause for cautious optimism, especially in respect of affordability. Firstly, according to the Nationwide, the typical first time buyer property costs 4.4 times average earnings; above the 20 year average of 3.6 times earnings but well down on the peak, of 5.4 times in 2007. Secondly mortgage payments now account for 20% of average monthly earnings, driven down by cheaper houses and lower interest rates, from 24% before the financial crisis. Thirdly more first time buyers, 53% compared to 40%, are opting for mortgage terms in excess of 25 years, lowering monthly payments and again helping to make housing more affordable.

The biggest hurdle first time buyers still need to overcome though is the need for a larger deposit; the median deposit put down is now 20%, compared to 10% before the financial crisis.

The Nationwide believe that with affordability improving and the Funding for Lending Scheme having a positive effect, the number of first time buyers will “gradually rise” in the months ahead. However, the building society goes on to point out that the biggest single factor will be the performance of the economy generally and more specifically the labour market.

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