Struggle continues for first time buyers

Over the past decade first time buyers in the UK have not had it easy, having been confronted by a range of hurdles and problems that have hampered their ability to get onto the property ladder.

For the past ten years the UK has been in a housing boom, where property values of rocketed enormously, with the average property price quadrupling in value in some areas. With income going up at a much slower pace this has made the prospect of getting onto the property ladder more of a dream than a goal for many non-homeowners.

However, over recent months there has been a great deal of news suggesting that the housing boom has finally come to an end, and that property prices are set to plummet over the next couple of years, with property prices in some areas already having fallen over recent months.

Whilst this is not particularly welcome news for homeowners, many first time buyers may have thought that this was at last their chance to get a foot onto the first wrung of the property ladder, but many have been disappointed due to various obstacles that have been put in their way.

A recent report from the homeless charity Shelter claims that first time buyers today face the toughest challenge ever to get onto the property ladder. The report claims that whilst house prices have jumped by around 200% in some areas, the average income has risen by just 53% during this period.

Officials from Shelter state that whilst first time buyers already faced difficulties the situation had been worsened by the current turmoil in the money markets, which had resulted in decreased access to affordable mortgages and lack of affordability.

Over recent months the base rate in the UK has fallen three times, taking it from 5.75% to 5%. This three 0.25% cuts came after a series of five interest rate hikes between August 2006 and July 2007.

Whilst the interest rate cuts made things look a little brighter for first time buyers who were worried about being stuck with a high interest mortgage other factors have made it impossible for many to get onto the property ladder.

Since the onset of the credit crunch credit conditions have become much tighter, and with so many lenders tightening up on their lending criteria many first time buyers may find that they are unable to gain access to a suitable mortgage because they are no longer eligible.

The credit crunch has also resulted in lenders hiking up their mortgage interest rates and arrangement fees, which means that even with the Bank of England base rate cuts affordability is way out of reach for many first time buyers.

In the past first time buyers with little or nothing in the way of savings – and obviously no property from which to take equity – relied on 100% and 125% mortgages to meet the cost of purchasing the property and related costs. However, over recent months these have all disappeared from the market, leaving first time buyers with very little in the way of choice.

To add to this problems, even getting a 95% mortgage has become difficult, as many lenders have said that those with a 10% or 5% deposit will not be able to access their most competitive rates, which means that in order to get a more affordable mortgage borrowers have to stump up a far higher deposit – else they face being lumbered with a more expensive mortgage.

One official from Shelter stated: ‘Despite falling house prices, many lenders are increasing their mortgage rates, making an already desperate situation worse. It means there is a generation of young people and young families being locked out of the housing market without a hope of ever sharing in the asset wealth of the generation before.’

After his recent first budget the Chancellor of the Exchequer, Alistair Darling, was slated for failing to address the issues faced by most first time buyers whilst focusing on helping those going into shared equity schemes.

Following the budget one official said: ‘Today’s speech offers no real respite for first time buyers. The credit crunch has meant that more and more lenders are reluctant to offer mortgages to aspiring home owners. The position for them is worsened by the fact that there is little or no disincentive for landlord-investors to purchase those properties historically destined for first time buyers. The Government continues to leave the next generation high and dry by offering almost no relief in terms of tax or stamp duty.’

She added: ‘Simply allowing shared ownership property buyers only to have to pay stamp duty when they own 80% of the property will benefit very few individuals. We welcome development of the shared equity Open Market HomeBuy scheme next month lowering the proportion of the property that purchasers will need to fund ‘themselves’, although it is disappointing that these enhancements will only aid key workers, not the other hundreds of thousands of others keen to invest in their own future.’