Are house prices really back in a bubble?

There's more to Britain's housing market than just London, says Merryn Somerset Webb.

Our national newspapers are mostly written in London where house prices have risen nearly 18% in the last year. So if you read them, you will be firmly of the view that house prices are back in bubble territory, and that if you don't buy now, you will miss the boat forever. But if you look more closely at the numbers, you will see that it simply isn't so.

Instead, as the Council for Mortgage Lenders notes, most "of the property market... exists outside London... much of it is experiencing nothing like the euphoric conditions that are filling the London media column inches and broadcast news."

London prices may have left their 2007 peaks far behind, but in northwest England, prices are still 11% below their old highs, before you even consider inflation.

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In London, the average first-time buyer is borrowing around £200,000 nearly four times their income whereas outside London, they are borrowing a more normal 3.3 times their income (£110,000).

However, the key point to note is that £200,000 won't get you much of a house in London, and nor will £110,000 get you much anywhere else.

So, many first-time buyers trying to get in to our overpriced market must have substantial parental support in the form of large gifted deposits. But what of those parents who would like to help, but can't actually hand over £100,000 to get their child on the ladder?

There are ways you can help, says Nicole Blackmore in The Sunday Telegraph. You can offer an informal loan. You can take out a joint mortgage with your child so that your income is considered when the mortgage is calculated (try Coventry Building Society's Step-Up mortgage).

You can use your savings to deposit money in an account that offers security for the mortgage (as with Barclays Family Springboard mortgage or Market Harborough's Family Deposit). Or you can use your own home equity as security (as with Bath Building Society's Parental Assisted mortgage).

But here's the problem: do any of these and you put your own financial future at risk. With a joint mortgage you are jointly liable for payments. If you offer your savings as security, you not only lose the right to use them as you wish, but you run the risk of losing them if your child doesn't make her payments.

The same goes for using your own home as security: if they don't pay, you have to. You may think this is unlikely to be a problem; perhaps with wages now rising above inflation it isn't.

But here's a number to consider before you sign on any dotted lines: according to Halifax, 38% of parents who've helped their child to buy a house are now worried "about their own financial well being as a direct result".

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.