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   Affordability still an issue for struggling first-time buyers
The plight of struggling first-time buyers worsened during 2009 as house prices started to rise again and mortgage lending remained tight. Would-be homeowners could be forgiven for starting 2009 feeling optimistic that buying a property was finally going to be within their reach this year. House prices had been falling since October 2007, and economists were predicting further drops of between 5% and 20% during the coming 12 months. At the same time, the Bank of England slashed the base rate to just 2%, and by March it had fallen to a record low of 0.5%. The combination of lower house prices and lower interest rates had a big impact on affordability, with first-time buyers typically spending just 15.9% of their income on mortgage interest payments in January, the lowest level since the beginning of 2006. But Nationwide Building Society surprised economists in March by reporting a 0.9% jump in house prices, later revised up to 1.2%, the first increase for 16 months. The housing market gave back some of these gains in April, but prices rose again in May, marking the start of a seven-month run of increases, which has not yet come to an end. Since reaching their low point of £147,746 in February, prices have risen by nearly 10% to average £162,764 at the end of November, the latest month for which figures are available. The impact on first-time buyers of rising prices has been made even greater by the hefty deposits lenders are currently demanding. Figures from the Council of Mortgage Lenders show that the average person buying their first home with a mortgage has put down a record of 25% of the property's value during each of the past nine months. With the typical first-time buyer property costing around £133,000 in October, people are finding average deposits of more than £33,000 - the equivalent of a year's salary. Unsurprisingly, given the high sums involved, the CML estimated in July that around 80% of people aged under 30 who were buying their first home, were receiving financial help from their parents. Nor have first-time buyers received much of a boost from tumbling interest rates, as lenders continue to reserve their best mortgage rates for borrowers with at least a 40% deposit or equity stake. The best two-year fixed rate mortgage for someone borrowing 90% of their home's value is currently 5.98%, offered by Nationwide, compared with a market-leading rate of 3.64% for someone with a 35% deposit or equity stake. The difference between the two rates on a £100,000 mortgage would be £137 a month or £1,648 a year. The average rate for someone borrowing 95% of their home's value has dropped from 6.63% to 5.80% during the past year, while rates for those with a 10% deposit have fallen from 6.52% to only 6.19% during the same period. Despite a succession of Government bailouts, lenders have also been slow to increase deals for people borrowing a high proportion of their home's value. In January this year there were only 30 mortgages available to people with a 5% deposit and just 204 to those with a 10% one. But the availability of these deals has worsened during the past 12 months, and there are now only nine different mortgages for those needing to borrow 95% of their home's value and 116 for those borrowing 90%. Despite all these factors, the number of first-time buyers has steadily increased throughout the year. In January only 8,600 people bought their first home with a mortgage, the lowest figure recorded by the CML since it began to keep figures in the current format in 2002, but by July numbers had risen to 20,000. However, this is still significantly below the more than 30,000 people who bought their first property each month during most of 2006 and 2007, and a peak of just over 50,000 in August 2002. The coming year may prove to be a better one for first-time buyers. There have been signs in recent weeks that lenders are beginning to loosen their lending criteria, while the CML is predicting a near-doubling in new mortgage lending to £15 billion during 2010. But while this is well up on the £8 billion of estimated net lending during 2009, it is well below 2007's figure of £108 billion, and it remains to be seen how much of the new lending will go to first-time buyers. A number of economists are also expecting the current housing market recovery to run out of steam and for prices to start falling again, although others think the cost of property will remain flat next year. Sue Anderson, spokeswoman for the CML, said: "It's a very mixed picture for first-time buyers and it's riddled with uncertainty about what happens now with lending criteria and house prices. "The supply of mortgage lending has eased slightly but not much, and the Bank of Mum and Dad may be less inclined or less able to help first-time buyers." But she added that if interest rates remained low, affordability for people who were able to buy their first home should remain good. Source: 24dash.com Due to problems with spam only SalfordOnline members can now leave comments. Becoming a member of SalfordOnline only takes a minute, just hit the red Join Us button at the top right hand side of the page to create your Personal account. Got a news story? Need help with publicity for an event in Salford? Send it to newsdesk@salfordonline.com or call the SalfordOnline newsdesk on 0161 789 5377. |
