BUYERS are eagerly snapping up homes in the poorest areas of Gateshead and Newcastle to avoid crippling mortgages and a property stampede elsewhere, according to a new study.

Instead of homeowners trapped by falling prices in so-called "low demand"areas, the report found most residents were managing satisfactorily.

And it revealed many people were choosing deliberately to live in those areas - which will receive £69m of Government cash under the Pathfinder scheme - in order to cut housing costs.

The report concluded: "The findings suggest many households have actively avoided, or sought to minimise, major debt. They have done so by purchasing in relatively low-value areas."

Newcastle-Gateshead is one of nine Pathfinder schemes across England, which are all in areas where the housing market was feared to be collapsing, with abandoned streets and homes nobody wants to buy.

But the study, jointly carried out by the Office for the Deputy Prime Minister (ODPM) and the Council of mortgage Lenders, found that most people did not want to move elsewhere.

Although house prices had not risen as sharply as the national average, they were up 51 per cent in the Newcastle-Gateshead area between 1996 and 2002, to an average of £51,436.

Even the cheapest properties had risen by 24 per cent over the same period and were worth an average of £25,963.

Almost 28 per cent of house purchases were cash sales, suggesting speculators were targeting struggling areas where properties were seen as bargains.

The report concluded there was little evidence that residents were "struggling to maintain their status as homeowners".

Lenders were not refusing to finance mortgages in the low demand areas and local people were not demanding more help.

Rather than concern about house prices or the condition of their homes, residents had worries about the overall state of their neighbourhood, the report said.

However, the report did urge lenders to offer "top-up"loans for either renovation or house improvements to guard against falling prices.

Regeneration Minister Jeff Rooker said: "Giving people greater housing options, and more ways of financing them, is more likely to encourage them to stay in an area."

A 15-year programme of revival is being drawn up in Newcastle-Gateshead with developers, banks, building societies, the health authority and the regional development agency.

Last month, the ODPM announced a £450m expansion of the scheme, possibly to the Tees Valley, which narrowly missed out in the first round of funding.