Buying your first house is always a difficult time. There are so many important decisions to make, and problems to be solved, which combine to make it one of the most stressful events that will occur in most people's lives.
Some of the most obvious problems include the need to:
* find a suitable house to purchase
* plough through complicated financial information
* choose an appropriate mortgage that will cover the cost of the house and is within your own strict budgets
* save up enough money (usually whilst still renting another property) to cover a mortgage deposit
* deal with unfamiliar legal fees, surveys and other costs
* make a realistic offer on your prospective new home
* waiting to see if the offer is accepted
* complete the purchase
* move and get settled in the new house, with whatever decorating/rebuilding is required
Given these factors, it is perhaps not surprising that first-time buyers can be the first to get spooked by changes in the housing market.
First-time buyers (FTBs) make up an extremely important sector of the house buying market, and many analysts view them as the life blood of the whole housing market. Without them a housing slowdown or even collapse of the system is inevitable. Recent reductions in the number of FTBs purchasing houses, with Scotland achieving its lowest annual total for nine years, and the increasing struggles experienced by FTBs trying to get onto the first rung of the property ladder will have serious knock-on effects, which are already being experienced around much of the country.
National Savings and Investments (NS&I) Senior Savings Strategist Dax Harkins said: "Despite a recent cooling house market, house prices have continued to outstrip both savings rates and incomes over the last year which means potential first-time buyers need to start saving sooner and harder to get into the market."
Whilst house prices continue to increase at a faster rate than people's incomes there will be fewer people able to afford a house.
In a recent study NS&I found that the average length of time required by FTBs, to save for a 5% mortgage deposit, ranged from five years in East Anglia, to three years, nine months in Scotland, with the average being four years and nine months, this is nine months longer than a year ago. The average age of first-time buyers also has increased, going from 37 from 31 three years ago.
The property website Rightmove has warned that the housing market could remain static for several years whilst it waits for the incomes of FTBs to catch up with the housing prices.
Miles Shipside, commercial director of Rightmove, said "As many sellers are refusing to part with gains they have made, buyers are forced to make up the affordability gap?The reality is it will take seven years of static house prices and wage inflation to bridge this affordability gap." Marjorie Townsend, head of Edinburgh-based Lindsays Residential, says: "It was recently reported that an average home in Edinburgh costs seven times the income of the majority of nurses. This is a shocking statistic." With over one in six FTBs turning to relatives and more high street lenders offering 100% mortgages, or even 102% from Lloyds TSB and Scottish Widows, to help buyers get onto the property ladder, some may be able to squeeze onto the first rung, but end up with long-term crippling debt in the process, fuelling the continued house prices inflation.
Various banks have come up with innovative methods to help facilitate the ability of FTBs to purchase a house which, whilst not addressing the real problem of house prices, will allow more people to own their own home.
A guarantor mortgage can increase the amount that can be borrowed, as long as the borrower's parents have enough income to cover all their own debts, plus their child's mortgage each month; however the parent will not have to make any payments themselves unless their child's mortgage goes into arrears.
An offset mortgage could mean that money from a parent's savings account can be offset against their child's mortgage. Although the parent would not receive interest on their savings, the reduction in the amount to be paid by their child could make a big difference, and they would not incur tax on the amount either.
A 'Professionals' mortgage is a possibility for certain workers, which allows them to borrow more than their initially low-pay career would usually make them eligible for, on the understanding that their future pay will increase rapidly as they become high earners.
Whilst some may urge for caution to prevent the possibility of building up financially crippling levels of debt, others see a need for buyers to act fast.
Marjorie Townsend, of Lindsays Residential, believes: "The best advice for first-time buyers is to move quickly ?There really is nothing to be gained by waiting for a competitive closing date, which will drive the price up. There are lots of sellers out there who are eager to sell and whose particular circumstances may require a quick transaction."
Overall it seems that the situation for FTBs will continue to prove difficult unless a major change occurs that bridges the gap between income and house prices for those in most need. Recent government initiatives such as the Shared Equity scheme, that allows part ownership of property, may go some way to enabling some FTBs to start out, but Ed Davey MP, the Liberal Democrat housing spokesman, believes the policy could make housing even more expensive, "It seems to be looking at the demand side which could stoke house price inflation and make the problem of affordable housing even worse."
Until the issue of supply and demand is addressed, there will continue to be problems. According to the Barker Review, which was published in April, up to 140,000 new homes need to be built each year in the UK if supply is to keep up with demand. Even if new homes are built at this rate, the time taken to stabilise the market will mean further delays for prospective new buyers who want to own property.
Further information:
Moneynet mortgage price comparisons
House price reports
Richard works in Edinburgh for Bigmouthmedia, occasionally writing for the personal finance blog Cashzilla, and drinking too much coffee.
As your home appreciates in value, you gain equity. You... Read More
Refinancing your debt via a home equity loan shifts your... Read More
Home Equity Loan vs. 401(K) LoanYou've finally decided to add... Read More
Home equity loans or lines of credit have increased dramatically... Read More
Obtaining a home loan is arguably the most expensive transaction... Read More
In today's world, a borrower should not be paying mortgage... Read More
Do you need cash? Here's a mortgage for you. If... Read More
Real estate lenders now offer mortgage loan quotes and application... Read More
Many people fret the rising tide of interest rates. You'll... Read More
Home mortgage interest rates hit record lows in 2004 and... Read More
Federal banking regulators have recently expressed some concern over the... Read More
Finding a cheap home improvement loan can be a challenge... Read More
Here is a useful flexible mortgage guide. Flexible mortgages are... Read More
Getting a home loan with bad credit has actually never... Read More
Are you one of the millions of Americans who will... Read More
When it comes to American spending habits, the sad truth... Read More
For years, when someone wanted to purchase or refinance a... Read More
There are some definite benefits to doing a cash out... Read More
With an impending up-grade to the family due in a... Read More
While most multi family properties are designed to allow the... Read More
When a mortgage broker asks a borrower to pay points,... Read More
Applying for a subprime mortgage loan online can seem intimidating... Read More
If you are a homeowner, it couldn't be easier to... Read More
Have you been turned down for a home loan recently... Read More
To find the cheapest home improvement loan that you can,... Read More
If you want a low interest, low payment mortgage refinance,... Read More
How do you know if a reverse mortgage is right... Read More
If you buy new windows, you'll not only pay for... Read More
A commercial mortgage or commercial remortgage is a business loan... Read More
If you as an investor understand the process, you will... Read More
Have you decided to refinance your home or apply for... Read More
Mortgage lenders have set up shop online, but they aren't... Read More
Your home is a source of pride and accomplishment. Did... Read More
I fully realize if it sounds too good to be... Read More
Drive around and see how many signs you see that... Read More
There are numerous reasons a person has bad credit. Late... Read More
For years, when someone wanted to purchase or refinance a... Read More
The information in your credit history helps mortgage lenders decide... Read More
Whether you need some extra cash to pay off some... Read More
Refinance mortgage rate is the best rate available to qualified... Read More
There are many benefits in choosing a remortgage, some of... Read More
For the first time since May 1996 reports have indicated... Read More
Okay, you've decided to buy a home and are trying... Read More
Have you ever heard of a mortgage broker before? If... Read More
Uncle Sam has a gift for the men and women... Read More
If a mortgage could be paid off in five years... Read More
The average home in the United States has a value... Read More
Applying online for a mortgage is very fast and easy.... Read More
Seldom in ones life do we get a chance to... Read More
When you're shopping for a new home-especially for the first... Read More
"You've been approved!" The words you have always wanted to... Read More
Listed below is a guide to mortgage terms. It is... Read More
Financing and buying a home can help improve your financial... Read More
If you're thinking about taking out a home improvement loan,... Read More
You've heard that interest rates are down and you think... Read More
Consumers interested in purchasing or refinancing a home will pay... Read More
The power of home equity and interest-only payments, provided from... Read More
You can buy a home with a bad credit record;... Read More
There are currently more than 50 million home mortgages in... Read More
Getting a quick cash loan, cash advance or payday loan... Read More
Have you ever noticed how hard it can be to... Read More
Slight increases in the interest rates raise your hackles. Tension... Read More
Home mortgage interest rates hit record lows in 2004 and... Read More
I have heard a number of radio ads and have... Read More
Self-employed mortgages, as the term implies are mortgages designed for... Read More
Are you thinking of buying a home? If so, then... Read More
Mortgage Refinance |