The Nationwide July house price review shows the lowest level of first time buyers for 20 years, with people being put off from entering the market by huge down payments.

The Nationwide figures contrast with a survey released by Hometrack on Monday, which showed house prices are stagnating. However the Hometrack report covers England and Wales whereas the Nationwide report is for all of the UK.

Commenting on the figures Alex Bannister, Nationwide's Group Economist said:

"House prices continued to rise at a steady pace in July with the price of the typical property up 1.0%, compared with June's increase of 0.9%. A typical house now costs £128,251, up around £11,000 on the start of the year and 17.9% on July last year.”

“As has been the case for the last 6-12 months, prices are rising fastest in the regions where affordability is less stretched such as the North and Yorkshire & Humberside.”

“House price inflation remains lower in more expensive regions such as London and its immediate commuter belt.”

“Reports of falling prices continue to reflect certain parts and sectors of the market rather than a generalised trend. Activity is broadly mirroring the regional pattern of price growth, resulting in a marked change to the mix of properties being sold, with London and the South East accounting for a smaller proportion of UK sales than was the case a year ago.”

"July's 1.0% rise takes the increase in the price of an average house during 2003 to 7.7%. Our forecast of a 10% rise in house prices during 2003 implies monthly increases of just over 0.4% for the remainder of the year.”

“Price growth has already slowed since the end of 2002 and we continue to expect a further easing as a result of weakening pay and job prospects. We had expected a cut in base rates in July so our forecast is unaffected. However, in itself the 0.25% cut in base rates is unlikely to significantly boost demand for property given the weakening labour market trend. Given the current level of interest rates and the availability of attractive mortgage products, further reductions will probably have little impact on demand and house prices.”

“The generally high level of house prices, deposit requirements and some employment uncertainty are combining to dampen house purchase activity particularly from first-time buyers. Nevertheless, although there is every indication that the housing market is slowing without major problems, the current rate of house price growth remains strong and the likelihood of house price inflation in 2003 being lower than 10% has reduced.”

"In contrast to the steady slowdown in house price inflation, activity levels in the year to June were significantly down on last year (first-time buyer numbers down 31% and existing home owners down 5%). At first glance the drop in activity looks at odds with continued price rises. However, although first-time buyer numbers remain low with the numbers entering the market in 2003 likely to be the lowest for around 20 years, the number of existing homeowners trading remains above the levels seen over the last 5 years (with the exception of last year).”

“First-time buyers add impetus to the housing market as they constitute net new demand. Nevertheless, even with fewer of them, house prices can continue to rise but the pace of growth tends to slacken. This is because with fewer new buyers chasing each property, existing homeowners take longer to sell their homes and chains tend to lengthen.”

Regional deposits rise

Although the recent rate cut means repayments are slightly lower, for many (especially first-time buyers) the main obstacle to home ownership is the size of deposit required.

In the past, first-time buyers put down relatively small deposits - sometimes none at all. In this cycle, prudence on the part of lenders and borrowers has meant that typical deposits are now higher.

The typical first-time buyer in the UK now puts down a 12% deposit (compared with 5% in the late 80s). Interestingly, deposit sizes vary from 10% in the North West to 17% in London (see Table). This means that the typical first time buyer is putting down a deposit of just over £7,000 in the North compared with around £30,000 in London (a 5% deposit would be £3,300 and £9,000 respectively).

It is therefore not surprising that many prospective buyers seek financial assistance from parents or purchase as part of a group, comments Alex Bannister.