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LONDON-Property consultancy FPD Savills has said that findings by Cambridge Econometrics are fundamentally flawed. The Cambridge report asked if first time buyers of residential property are over exposed to a potential re-correction in house prices. Should their be a downturn in the market the Cambridge thesis said that many could once again face the problem endured by so many during the early 1990s, namely negative equity.

Richard Donnell, director of research at FPD Savills, said, ‘First time buyers are much older than they used to be. It would take a 1980s-style recession to push them into negative equity and first time buyers are not as exposed as they were a decade ago.’ The average age of the first time buyer is currently 32, much higher than the average age in the late 1980s. Consequently, first time buyers have more equity to put down when buying a property. According to Government statistics the average first time buyer has an 80% mortgage and less in Greater London, which averages 77%. ‘These levels of gearing are much lower than was the case in the late 1980s which means that first time buyers are in generally better financial shape,’ said Donnell.

The average mortgage advance to a first time buyer is £57,383 ($82,630), against an average dwelling price of £71,623 ($103,137), meaning that house prices would have to plummet by 20% for first time buyers to fall into negative equity. The economic slump of the late 1980s would have to reoccur for a drop of this magnitude and FPD Savills has forecasted that mainstream UK house price growth looks set to moderate to 8% in 2001 with a similar level of growth in 2002. ‘In light of current economic forecasts a repeat of the house price crash of the late 1980s is not going to happen,’ said Donnell.

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