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How to be a first-time buyer


Last Updated: 12:01am GMT 26/01/2008
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The number of young people getting on the housing ladder is at its lowest for 28 years. But savvy buyers may be able to take advantage of a changing market. Caroline McGhie reports

  • Have your say: Are you struggling to get on the housing ladder?
  • Five things you must do
  • Five things you must not do
  • Compared to post-war baby boomers who rode the housing market for the past half-century and ended up property-rich, the current young generation has a real struggle on its hands. The Halifax reported last month that the number of first-time buyers is now at its lowest since 1980. Only 300,000 entered the market in 2007 - 44 per cent fewer than in 2002.

     
    Elaine Shanks
    Elaine Shanks: 'I bought a luxury, two-bedroom, high-spec, fifth-floor flat with nice views for £245,000'

    In a nationwide review of affordability, it also found that 466 out of 483 towns are now out of reach of first-timers. Even so, the average price for a first-timer rose by 15 per cent last year to £175,000, taking the total rise over five years to a whopping 82 per cent. Some predict that by 2026 only 40 per cent of those in their early thirties will be able to purchase.

    But if prices are now slipping (5 per cent falls are predicted in London in the next six months by estate agents Hurford Salvi Carr), and if repossessions are on the increase, aren't first-time buyers well placed to pick up the pieces at bargain prices? Not so, says Richard Donnell, director of the housing intelligence business Hometrack. He believes that price falls would have to be "substantial" before the young could step in with ease. "We asked Professor Steve Wilcox, at York University, to look at affordability levels and he found that just under a quarter of young working households can't get on the lowest housing rung.

    "Even if house prices fall by 10 per cent, the number of people priced out will only go down to 20 per cent. We would need to see price falls of a fifth or more to make a difference. We also found that three quarters of those who are renting can't get on the ladder, and we know that already half of those who do manage can only do so with help from their parents and families. The future is very bleak.

    "Society is bearing the brunt of the structural fault lines in the housing market," he says. "The young can't buy. People are commuting long distances. Those in their twenties are still living with their parents. Families are living in properties not suitable to their needs. Old people are losing their homes to fund their care and solve the problems in the care industry. These are all very real problems which have housing at the centre of them."

    No wonder some housing pundits believe we are moving towards a more "continental model", where younger generations will simply rent into middle age.

    Others see portents of doom in the tealeaves. Sociologists Dr John Bone, of Aberdeen University, and Dr Karen O'Reilly, of Loughborough University, believe the housing crisis could create a society of haves and have-nots on a Victorian scale. "For the people, young and not so young, who find themselves on the wrong side of the housing divide, the experience is one of extended student-style house-sharing, living with parents, postponed independence, relationship formation and parenting," says Dr Bone.

    The plight of first-timers is actually changing the property map. A straw poll conducted for The Daily Telegraph by Winkworth shows that only 15 per cent of buyers in Ealing and Acton are first-timers, with entry level at about £250,000 for a one-bedroom flat. In more prosperous Borehamwood, only 10 per cent are first-time buyers, 80 per cent of whom get parental help. The new hotspot is Tottenham, where 80 per cent of buyers are first-timers, often clubbing together.

    The trend to move in with allcomers has prompted the lawyers Foot Anstey in the West Country (now more unaffordable to first-timers than the South-East) to set up a new department, Living Together, to design bespoke "pre-shack" agreements. They are joining forces today with Relate, in Exeter, to hold their first workshop and explain to people the need for a legal agreement or Declaration of Trust to be put in place to provide a framework for when things go wrong.

    "We see all sorts of people, often students whose parents supply the deposits. They buy a house together because it is cheaper than renting at university," says Tamara Richardson at Foot Anstey. "It is almost as if buying a property together is what you do now instead of getting married. It is about taking on a mortgage and maintaining a property without any of the bells and whistles and fun element of marriage.

    "An agreement can allow one partner to put in more money than the other, one to take the mortgage and the other to work doing it up," she says. It can also protect a parent's investment if a daughter is buying a flat and living with a boyfriend they are not fond of. "People have a better chance of staying together if they have worked out the answers to the big questions first."

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    Comments

    The stupidity of housing ladder talk will be over soon just like here in America have a good recession/Depression hope your retirement isn't in sub prime or any other Mortgage backed securities based in the US
    Posted by Mr Greenspan on January 29, 2008 3:42 PM
    Report this comment

    If, as Paul Matthews claims "Property ownership is not a right; it is a priveledge [sic.] that needs to be worked for. ", would he support a 100% inheritance tax and a 0% income tax?
    Posted by RZ on January 29, 2008 3:41 PM
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    I am a first time buyer and saw this article being advertised in the main supplement of the paper; I looked forward to reading the article. Utter rubbish! Ms. McGhie's writing is unhelpful, does not reference the key facts of the housing market and effectively persuades people to part with their money 'no matter what'. Pathetic, whoever proof read this article should resign.
    Posted by James Preston on January 29, 2008 3:07 PM
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    I can't understand the prejudice against renting. I shall buy again in a year or two, but currently I'm very happy renting in a really nice area of North London - a lovely two-bed flat for £1100-£1500 per month. Two (or even three) people could (and sometimes do) perfectly easily share this space - say 500-550 square feet, at a shared monthly cost far lower than each would need to pay for a mortgage on an equivalent leasehold property (average current asking price £450,000). There are no service charges while renting (in London a saving of £1,000- £3,000 per year) and the exhorbitant council tax is halved. There no repairs to pay for. Every so often the property is re-decorated by the landlord. Where's the problem?

    I owned a property for 25 years, and now having sold and renting it feels as if a stone has fallen away from my neck. I have perfect freedom of movement - whereas once I buy it would take months of my life to sell and buy again (and approx £25,000 of fees to estate agents, stamp duty etc in total moving costs).
    Except for multi-property dealers there is only one reason to buy and that is very high investment appreciation - otherwise there's no net gain. London property will continue to do well, but not in the short term say two years). Meanwhile, life is for living, and this period of price standstill is an opportunity to do just that. I would advise all young people not to worry about it, to save as much income as possible and invest it short-term in high-earning accounts, and some long-term in good equity ISAs - which like property are tax-free. Rent in a good local area - one where rents are still low - and use the next two years to research the property markets. Many - not only first-time buyers - underestimate the extent of the financial burden of owning even a small flat, and I can remember 14% mortgage rates. The calculation is Micawber-like: a few £ out and you're in big trouble. Right now it certainly isn't worth jumping in unless very well-upholstered with large cash reserves or guaranteed family support.
    In any case, the idea of property ownership for all was unknown in the 70s and early 1980s, today's lending conditions are still far easier for first-timers than back then - but we were all more patient: I couldn't afford to buy until I was 35, and did not think of it as a restriction of my human rights. Possibly today's youngsters are a bit more demanding. But the whole canard of 'the need for affordable housing' is just political cant. In a free market if something is affordable, then the wealthy few will just buy up lots of it! And having property ring-fenced for certain professions is an artificial distortion of the market, and an invitation to fraud.
    Too much immigration or internal migration (e.g. to London) does lead to high rents. The government could decentralise administration (it is the large number of high public service salaries that push up rental and housing costs in any city) but of course it will not, as its MPs and civil servants stand to make vast amounts out of their own London properties.
    Posted by jaytt on January 29, 2008 2:24 PM
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    Paul Matthews – you really are showing your ignorance. I had a paper-round, did odd-jobs and worked my way through university. I still needed student loans because I didn’t get a grant, unlike your good self presumably. You completely miss the point that , if you are not from a wealthy background and want to go to university, you will have no real choice but to incur debt. You also miss the crucial point that houses are now hideously over-priced. Cloud cuckoo land must be nice but why not pay a visit to reality once in a while?
    Posted by simon on January 29, 2008 1:33 PM
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    The social and economic impact of this is huge. I'm married, mid thirties with a PhD in computer science, both working and we can't afford anything in London. UK's in a downward spiral. Wouldn't buy now even if I could and I don't have time to wait. Answer ? Probably move abroad. Bye bye knowledge economy.
    Posted by Mark on January 29, 2008 1:22 PM
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    I am a young professional earning over £30k pa but still cant afford a mortgage because of crippling student debt.
    Its obvious that the Government/civil service did not think through how pushing this burden onto students would affect the economy.
    Posted by simon on January 29, 2008 1:21 PM
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    Riders on a storm.....as 2009 not 2008 is predicted as the year of pain i would be reluctant to purchase a new home now.
    Nothing dead about rental money in a falling market,paying off a large lump sum plus the huge amount of added interest and a fall in the asset price is a lose lose situation.
    I am ready to buy but not in this market, rates will come down as will prices, true value will return or thereabouts, for me i am happy to rent for another 1-2 years.
    Posted by Paul Anthony on January 29, 2008 11:24 AM
    Report this comment

    I'm hoping that the house prices will come down as at the moment even if I move in with someone else, I will be struggling to have any sort of life whilst paying a mortguage.

    On my own I have no chance of getting a property as even flats are out of my price range!
    Posted by Kim Thomas on January 29, 2008 9:23 AM
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    This article is based on the very British premise that renting is somehow wasteful or foolish.

    Homeowners are in the minority in mainland Europe where renting is the norm for all age groups. Nobody sees it as money down the drain.

    Unfortunately, a lot of people in the UK are being given a lot of bad advice and are leaping like lemmings into the property market.

    Good news for property speculators in 2009.
    Posted by yo_ghurt on January 29, 2008 9:03 AM
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    We bought/ traded up in 2002 and the housing market should return to, or around, the level of affordability that it was at then. Denying an imminent and significant drop in house prices is a futile variation on the theme of asserting continued house price inflation.

    It annoys me that I have, since 2002, had to explain why I have no interest in my house doubling in value in such a short time: Unless you are an owner of multiple housing properties you are unlikely to realise any capital appreciation until you downsize anyway - typically at empty nesting/ retirement. (To do what with it - put it into childrens' property because they can't afford on their own? Some way to encourage a meritocracy.)

    The people who make the most from house price increases are not the buyers/ owners but those that take a percentage of sales value as revenue. Let's just think who that is: lending institutions, insurance companies, estate agents, the government. Any chance that they may work against the interests of house buyers? Surely not the lending institutions that own estate agents.

    The main failing in my logic is that house prices are an emotional issue. So, yes, there will be a trough and sure enough there will be further peaks and further troughs. So, if you're fortunately a wealthy parent with spare cash, and kids that would like a property in the next ten years or so, is now the best time - a good time - to speculatively acquire housing property to give to your kids later? I don't think so. Maybe in 2013.


    Posted by Hopefully sensible house owner with kids on January 29, 2008 5:59 AM
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    How is it that so many (by no means all) of the people who complain they can't afford a house manage to run cars, buy convenience foods, eat out the rest of the time, drink plenty of alcohol, smoke, take fancy holidays...

    It's fine to do those things, but not then to complain about house prices. You have to decide your priorities, people.
    Posted by Dave on January 29, 2008 12:00 AM
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    Why on Earth aren't these people aware of what a huge mistake they are making?

    Over a quarter of a million for what equates to just a couple of thousand pound worth of bricks, a thousand pounds worth of windows, a few grand in plumbing and electrics, £500 worth of plaster, a bargain basement kitchen and bathroom suite and a hole pile of useless dirt on which it's built on?? A lifetimes work for that?

    Would you pay £60,000 for an old nail of a car with barely an MOT and 2 months tax in the window?

    The first time buyers are quite literally the foundation of the housing market. Without them climbing on the ladder, those further up are unable to move on. They literally dictate the market to a degree and if they'd only stop and think, they could collectively make the whole thing adjust itself back to a sensible situation.

    Sadly, people seem to be falling over themselves to buy a 'luxury' flat somewhere in some hovel of an area, once brownfield, not big enough to swing the proverbial cat for as much money as they will earn in their young lives. Some people are paying up to 60% of their income, on a financial precipice that could easily end up in their demise if their is an economic downturn. OK life may be bad and buying is the solution to their woes, but not when you realise you could end up owing more money than you can imagine let alone afford if it all goes wrong. You may be buying a house 'worth' £250,000 but you'll be actually owing your lender hundreds of thousands more in the instant interest that the amount attracts the minute you take delivery of your nice new rabbit hutch.

    Bide your time and don't pass on a debt to your children and make the rich even richer. They've had it too good for too long at the expense of the regular hard working people of this country.
    Posted by K.Evans on January 28, 2008 8:29 PM
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    One thing older people can do is get rid of the inheritance before getting too old, when the government/council will take most of it off you anyway.
    We are selling our large house and splitting the money three ways - one third to us, the balance to our children, which will enable them to have homes of their own.
    The less you leave on death the better and possessions are just things you have to maintain -not a great idea as your income dwindles in your 60s (as we are.)
    Britain is bad value for housing and the reasons is solely the ridiculous restrictions on building new homes, which pump up the price of plots, when stacks of not particularly wonderful land could be built on, in small developmments, preferably by self builders or local people - not the big developers.
    Say every farmer was able to sell off ten acres for local people to build. It would help their cash flow and solve much of the housing problem at a stroke.We have looked for building plots for years to no avail - yet there is plenty of land available as only ten per cent of Britain is urban/roads- even in the south east.
    Prefabricated structurtes would also get the price tumbling down, so all could get decent housing. It just needs all officialdom to get out of the way and let things work naturally.
    Posted by Alan Franklin on January 28, 2008 6:59 PM
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    I think some of the reasons for gloating about a property crash in the above posts are unfounded. I am 24 and bought a 1 bed flat with my girlfriend in Central London six months ago on a fixed rate interest and repayment mortgage, with 10% equity. The suggestion that everywhere will fall in value I strongly believe is not the case. Buying near forthcoming developments that improve access or the quality of an area (in my case the East London Line extension and Olympic development), and in an area where demand outstrips supply (such as central London) both reduces exposure to property value falls. In addition, getting on the ladder is either restricted by high house prices or high interest rates for mortgages (rising property prices are often kept in check by rising interest rates to avoid inflation). Finally, renting in London, in my case is expensive and is 'dead money'. When less people can afford to get onto the ladder, the rental market experiences higher demand, and therefore rental prices (or the return on a 'buy to let' investments are strengthened). With all of you shouting about forthcoming property bargains, if people defer entering onto the ladder, competition for this prediced 'bargain-priced' real-estate will be fierce, driving up demand, and supporting prices.
    Posted by James on January 28, 2008 6:53 PM
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    "...so we're faced with the depressing and unviable alternatives of living at home or wasting money on rent..."

    Wasting money? In a steady or falling property market, what is owning a property, besides "renting" the money from the bank?

    In a falling market, renting makes more financial sense. Rent for around the same as a interest-only mortgage, and get your buildings insurance and maintenance paid for by someone else. Bargain!

    Posted by Andrew on January 28, 2008 5:52 PM
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    If your good prof has "found that just under a quarter of young working households can't get on the lowest housing rung" then it pre-supposes that three quarters can get on the lowest rung.
    If this is the case then what's the problem?

    Paul.

    Posted by Paul on January 28, 2008 3:45 PM
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    Paul Matthews cattily moans that if young people worked harder and saved more - like he did, we suppose - that we'd all be able to buy property. not easily, but with graft.

    Well, I'm sorry, but he hasn't figured out that good university-quality students who work hard all their lives and save all their lives can still come out the other side with large debts. Even managing to get a much-higher-than-average graduate salary and more than £10,000 in savings will still mean that there are no properties within our grasp - as myself and my boyfriend are finding.

    We know full well that we'd be crippling ourselves financially and in all likelihood shooting ourselves in the foot to buy now - so we're faced with the depressing and unviable alternatives of living at home or wasting money on rent. And this is the responsible way to live, to raise families?

    Parents are struggling more and more and for longer these days to support even supposedly successful children because the step to independence is financially impossible.

    The comment about the necessary drop in prices is true - but does not go far enough. They would have to drop by more than 25% to be of any use to people in our situation - not least because our parents would likely then not have sufficient funds to offer any help at all.
    Posted by Catherine on January 28, 2008 2:28 PM
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    There IS an answer - emigrate. That is what bright young people are doing - off to Australia, New Zealand and Canada. If they have the qualifications necessary they will get good jobs there and be able to afford a home and better lifestyle. A waste of talent for this country - but the obvious choice!
    Posted by Goodbye Blighty on January 28, 2008 8:19 AM
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    I just feel sorry for these people. It will be the FTB's who suffer from the highest amount of negative equity over the next few years. And the people who have taken out Interest - Only Mortgages will be hit even worse, perhaps taking a decade or so of extortionate Mortagage repayments before they have even come close to 'breaking eve'. Imagine being in a situation like that. The only quick way out would be Bankruptcy. Renting is now by far the cheapest option. let the BTL landlords and the property developers bear the brunt. The people who have spread the word that Property prices only ever go up should feel ashamed of themselfs.
    Posted by Tim Ware on January 27, 2008 11:04 PM
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    I feel sorry for these ftbs. What were they thinking of!?
    Posted by KE on January 27, 2008 10:47 PM
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    All i can say is, Dont they read the news about the impending economic crunch and recession about to sweep acros not only the UK but the world?? Surely some level of intelligence must exist to tell them UK housing is overpriced so why jump in now. So young but yet so burdened.
    Posted by del roberts on January 27, 2008 8:14 PM
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    I'm sorry to say these people are total muppets. Don't they have access to newspapers, TV or the internet. They appear to be wilfully blind to the trouble that is so clearly heading our way that they fully deserve the mess that they are going to get themselves into.
    Posted by Don Logan on January 27, 2008 7:13 PM
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    Utter madness - 100% interest only mortgage, and they were banking on prices going up!

    Some people are going to get their fingers very burnt in the near future.

    Falling for the old saying "prices only ever go up" at this stage of the game is madness.

    It will be difficult to have sympathy I'm afraid to say.
    Posted by Matthew on January 27, 2008 6:33 PM
    Report this comment

    I find it hard to say how sad I feel for these poor
    people, conned into investing everything in a
    shortly -to-be-falling asset when all they had to do
    was rent for a couple more years and then pick up
    the same property for no more than 60% of the
    price they have paid.

    Those advising them should be ashamed!
    Posted by James Bennett on January 27, 2008 5:46 PM
    Report this comment

    Each of these stories sounds like a disaster in the making! Even the experts now agree that we are on the cusp of a protracted house price slump. Croydon was one of the worst-affected suburbs of London in the early 90's house price falls, and it will be the same this time round. New-builds will be particularly badly affected (and could even be used by councils to house council tenants through private landlords when the market turns). I'm afraid that none of these first time buyers is likely to see a rise in their equity, and they may be stuck in their small flats for another 10-15 years.
    Posted by Robert on January 26, 2008 10:50 PM
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    This article reinforces my view that very little has changed: it has always been difficult to buy your first home.

    Back in the late eighties conditions were comparable to those that exist now; and I was not alone in having to buy my first property with a close (but not that close) friend. This is not a new phenominum.

    As for the statistic that 433 out of 486 areas are unaffordable: just how is this calulated? It seems like floored maths to me. If younger people started saving money from a young age, it would enable them to reduce the amount that they needed to borrow when they bought their first property.

    Unfortunately, today's young are less likely to go through the rites of passage jobs such as paper rounds and car washing, all of which helped me and my peers to save from an early age.

    Also, with the majority of kids (irrespective of accademic ability) going to 'university', a material number of young folk are building up debt instead of working and saving money for their first deposit.

    Property ownership is not a right; it is a priveledge that needs to be worked for.


    Posted by paul matthews on January 26, 2008 9:59 PM
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    What in the name of God are they doing entering the property market now,when all the signs are that house prices are about to dive.It wouldn't be so bad if they hadn't stretched themselves so far,but very shortly they are going to be in negative equity with massive mortgage repayments to boot.Have their parents/grandparents not given them any advice/had any knowledge of house price crashes in the past?
    Posted by Janice Jones on January 26, 2008 9:18 PM
    Report this comment

    Oh dear: lots of pain ahead for these young people
    as they find out what it's like to sit in a flat that is
    dropping in value day by day. They couldn't have
    bought at a worse time. It's a horrible feeling to
    have a huge mortgage around your neck and a
    property you can't let out or sell for the money you
    need. I hope they're prepared to stay in situ for the
    next ten years.
    Posted by MB on January 26, 2008 6:41 PM
    Report this comment

    After moving areas and deciding to rent 15 months ago, it's articles like this that confirm to me that houses will soon fall in price.
    If it is this hard to buy, then doesn't that tell people something? Requiring 1-year waits for off-plan, part-ownership and interest-only mortgages are a sure sign that the housing market is desperate to maintain momentum.
    It's hard to accept that you can be earning twice the average UK salary and still not be able to afford a house - but simple maths tells me that I can't be the only one, so I'm happy to rent at 60% of the interest-only mortgage it would cost to live in the same house... I hope others do the maths.
    Posted by G Crawley on January 26, 2008 5:02 PM
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    Hilarious!
    We are 3 months into a crash which will see 50-70% wiped off housing equity and these buffoons are still jumping through hoops to buy slum housing! Hahahahaha!

    Also £1281 market rent for a two bedroom slum flat in Manchester?
    Manchester, England?

    Mwahahahahahaha!
    Posted by Colin Camper on January 26, 2008 12:08 PM
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    I think Elaine Shanks is very likely to see the value of her new build flat drop significantly.

    Unfortunately legal fees and 5% discounts are also well known developer sales ploys, and have little or no value.

    Finally, once you have paid your 10% deposit, you will have exchanged contracts and you are legally obliged to complete, even if you are not happy with it!
    Posted by Jon on January 26, 2008 11:51 AM
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    quater of a million for a one bedroom flat! lunacy.
    Posted by ikenstein on January 26, 2008 11:50 AM
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    Oh dear, the final 'greater fools' take up their position as the patsies of the housing market. It is really sad to see what the result is of ten years of unbridled house price pumping have led to: Wide-eyed youngsters committing financial suicide and being led into it by the b'stard estate agents.

    Poor kids have just made a terrible mistake.
    Posted by mark on January 26, 2008 11:19 AM
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    "We are banking on the fact that house prices will rise," says Jonathan.

    "Oh dear" says Mike.
    Posted by Mike on January 26, 2008 11:11 AM
    Report this comment

    "We are banking on the fact that house prices will rise," says Jonathan. "It is ironic that we have waited so long to do it and now we are, people are talking of a crash."

    Ironic isn't the word. "Tragic" would be more appropriate.

    Posted by Mark White on January 26, 2008 10:16 AM
    Report this comment

    Unbelievable.
    People who think property only ever goes up in value, follow the herd, panic and end up paying 325 grand for an ex-council flat.
    Part of me wants to feel sorry for these folk, but I can't condone such ignorance as we face the biggest housing bust ever.
    Posted by red on January 26, 2008 9:13 AM
    Report this comment

    If your good prof has "found that just under a quarter of young working households can't get on the lowest housing rung" then it pre-supposes that three quarters can get on the lowest rung.
    If this is the case then what's the problem?

    Paul.

    Posted by Paul on January 26, 2008 9:06 AM
    Report this comment

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