First time buyer market may ease

WITH the Bank of England keeping interest rates at the record low of 0.5 per cent, the outlook should be good for those looking to buy a home. But with renting in London costing 50 per cent more than the rest of the country and banks requiring higher and higher deposits, the picture for those keen to get their foot on the property ladder is mixed. What should we expect? We ask the experts to give us their diagnosis on the position of the first-time buyer.

“The big issue for first time buyers over the next year will continue to be their ability to raise a deposit for a mortgage.

For those with a small deposit, the FirstBuy scheme in the new homes sector will be critical. [For more info on the FirstBuy scheme, go to The scheme sees government and housebuilders providing a 20 per cent loan for the deposit on a new-build, in addition to the prospective buyer’s 5 per cent]. Without it, higher interest rates for higher loan-to-value mortgages mean that for many it will be cheaper to rent than to buy. By contrast, those with a decent deposit are in a good position with less competition both from those who need a large mortgage whether they are occupiers or investors.

The longer-term outlook for those first time buyers is challenging. The ability to save for a deposit will be hindered by increasing rents as more pressure is placed on private rental stock. Additionally, banking regulations suggest that the availability and cost of mortgage finance will continue to vary by loan-to-value and loan-to-income measures that favour existing owner occupiers.”

“With average property prices in the capital at around £300,000, and seemingly rising, the outlook is not good for first time buyers. By definition they tend to be wealthier in London, but unless the Bank of Mum and Dad is operating, Douglas & Gordon is finding that buyers of cheaper flats south of the river are being hit by the worsening mortgage drought in conjuction with many sellers’ over-optimistic expectations.

Foreign buyers and investors dominate the market in the centre and it’s difficult to see any of this changing soon. The main issue is a lack of stock and perversely low interest rates, and high stamp duty costs are meaning many aren’t selling, squeezing supply. High prices are a corollary of short supply and that’s fragile given that a rate rise or big economic wobble could trigger a rush to sell.

The best advice for first-time buyers is to either wait for supply to ease and prices to perhaps dip, or to look further afield where buyers have the whip hand.”

“For first-time buyers, the biggest issue remains loan-to-value – that is, how much money a buyer can put down as a deposit versus how much money a lender is willing to loan them. Up until the credit crunch, first-time buyers could buy their first home with a 5 per cent deposit or in some cases, no deposit at all. However, since the financial crisis, lenders have pulled back those deals and now expect first-time buyers to have at least a 15 per cent deposit, an unblemished credit history, a secure job and a good wage.

There is light at the end of the tunnel as lenders are beginning to look at sound first-time buyers with 10 per cent deposits, and there are a few 95 per cent mortgages floating about, where buyers need a 5 per cent deposit – is currently offering a 95 per cent mortgage to people via our in-branch activity with estate agents Robinson Jackson.

So why are lenders courting first-time buyers again? I don’t think it’s necessarily because of pressure from government, the public or the media. It’s just that they have regained their appetite for lending again. Some banks have tranches of money now ready for lending at a certain rate – Northern Rock for example. Once all that money is loaned at a certain rate, they will retract and another lender will probably step forward with a new first-time buyer product. I expect a flurry of 90 per cent mortgages in the next 12 months but I won’t be surprised if a few new 95 per cent mortgages enter the market.

There’s also been talk about the use of guarantors for first-time buyers – responsible adults, usually parents, who are enrolled to cover any mortgage payments should the borrower find themselves in financial difficulties. Guarantors are useful if a first-time buyer is confident their salary will increase at a good rate, therefore making them confident they can afford a higher value home.”