HOUSEBUILDER Barratt Developments has reported a rise in selling prices but warned that the shortage of mortgages is still holding the market back.

The Newcastle-based group’s average selling prices increased 7% to £207,000 since June as it focused on building family homes in the more affluent South East.

Barratt, which also trades as David Wilson and Ward Homes, said underlying property prices remained “stable”, with London and the South East proving the most resilient. But, unless there is a “significant” rise in the availability of mortgages, the industry’s growth prospects will remain constrained, it warned.

Mortgages have become harder to get since the recession as lenders have demanded higher deposits – ruling many potential first-time buyers out of the market.

In a further sign of activity, average weekly reservations increased 26% as it benefited from an increased number of reservations per site.

The group, which returned to profit earlier this year after house prices slumped in the recession, said it expects a significant improvement in full-year profits as it benefits from selling homes at new sites on higher margin land.

Chief executive Mark Clare said: “We think it’s been a pretty good start to the year. There have been good sales rates across all the regions.

“The first 20 weeks have shown consumers are actually buying and we have been surprised at the strength of demand given the economic news.” The London market was being buoyed by strong demand from buy-to-let investors, he added.

But he called on lenders to reduce the level of deposits they demand to 10% of a property’s value, compared to the 20% that is currently common.

The average number of sites it has been developing over the past year increased to 379 from 349 a year ago as it ramps up activity.

Its more recently-acquired land is now being brought into production, with work expected to start on 40 sites by the end of the year. Shares rose by 5% after yesterday’s announcement.

Mike Bessell, an analyst at Evolution Securities, said it had been a strong autumn for the group.

He added: “Barratt has clearly mapped out its path to recovery and this statement is a clear indication of that being delivered.”

The builder said in August that it was in early talks to sell part of its shared equity mortgage book, which may prompt other house builders to follow in its footsteps.