Rising house prices ‘could increase loan costs’

First-time buyers and existing homeowners could be likely to find the costs of their Secured Loans increased after a number of studies indicate a rising in property values.

According to a Nationwide study, property rose by 0.9 per cent over April, compared to a 0.5 per cent increase last month.

As a result, chief economist Fionnuala Earley claimed that inflation rates are likely to increase in May, which would "lead to widespread payment difficulties" for borrowers.

Meanwhile, a Sainsbury’s Bank study has indicated that the annual cost of running a home has risen by more than ten per cent over the past three years.

The research indicated that as costs have risen by 12 per cent, or £1,199, since 2004-05, consumers are likely to find their ability to make secured loan repayments squeezed.

Mortgage payments are said to take up the majority (60 per cent) of homeowners’ annual budget.

Meanwhile, gas and electricity bills were reported to have risen by about 27 and 19 per cent respectively since three years ago.

Home insurance manager Robert O’May said: "It’s becoming more expensive to run a home, which makes it all the more important for homeowners to shop around to make sure they are getting the very best deals available."

However, he suggested that consumers can aid their attempts at debt management by shopping around for competitive deals on financial products such as mortgages and utility providers.

Meanwhile, first-time buyers could face further borrowing difficulties in case of an interest rate increase next month, suggests the National Association of Estate Agents (NAEA).

The study revealed that as demand for property continues to "outstrip" supply, prices will continue to rise, a move which could increase the cost of secured loans repayments for borrowers.

President of the NAEA Charles Smailes said: "It appears that we are finally hitting a period of leveling in the residential housing market. However this is unlikely to last."

He added concerns over interest rate increases and the implementation of home information packs are set to have a significant impact on the affordability of property for first-time buyers.

According to research by the AA, increasing house prices are causing Britons to stretch themselves to the "financial limits" to buy a home.

However, consumers were warned against cutting costs of "basic legal and social inspections" such as structural surveys and assessing flood risk damage to invest more money from their secured loan into purchasing property.

AA Legal Services spokesperson James Molloy said: "New homeowners who do not carry out basic checks face discovering too late that their dream home could actually be a financial time bomb."

Meanwhile, a Moneyextra study revealed that although property continued to rise over the course of March to £220,303, price growth is currently at its lowest for some six months.

Senior editor Robin Amlot said: "The prospect of higher interest rates on the way and talk of base rate rising as high as 7.5 per cent next year will have a dampening effect on the housing market over the coming months."

However, the study also revealed first-time buyers currently face the largest increases in property affordability.

Moneyextra indicated that those looking to buy a house for the first time have seen prices rise by 5.9 per cent over the past year, despite the entire market witnessing growth of 4.8 per cent.

As a result of rising property prices, in addition to widespread predictions that interest rates will surge upwards next month, an increasing number of Britons have been reported to be looking to fix the cost of their secured loan borrowing by taking out a fixed-rate mortgage.

Research released by mform.co.uk indicated that applications for such products have risen by about a third this month, compared to March.

However, Francis Ghiloni, marketing and business director, suggested that despite the popularity of fixed-rate offers, consumers should be cautious of fees and other charges associated with these deals, which may actually increase their monthly expenditure.

As a result, those consumers looking to take out a secured loan for property purchase could be advised to shop around for a competitive rate on their borrowing and ensure they take the full costs of their expenditure into account.

Interfinancial providing you with breaking secured loans news.