Why has it been so tough for first time buyers?
House prices have fallen by an average of 17.5% over the last year according to Halifax's latest figures. While analysts had warned that property was over-valued in many areas and that the rate of house prices growth we'd seen in recent years was unsustainable, the decline has been much steeper than anticipated.
One of the main reasons for this is a lack of mortgages made available by lenders. The credit crunch has resulted in a shortage of funding for mortgages and other loans. Coupled with this, banks and building societies are more cautious about who they will lend to and it has been very difficult to get a mortgage unless you have a significant deposit - in many instances lenders have been demanding borrowers put down at least 25% of the property's value. This has left many would-be first time buyers stuck: they've been unable to get a mortgage because they've not had a large enough deposit.
What's more, even those with enough of a deposit saved, have refrained from buying in case prices fall further.
In turn, this has exacerbated the scale of house price falls because with fewer people getting onto the first rung of the property ladder, the rest of the market has pretty much ground to a halt.
A chink of light in the mortgage market
There are signs that the tide may be turning. While it is too early to rule out further price falls, many estate agents are reporting increased interest from buyers and there are even indications of improvement in the mortgage market.
New figures from the Council of Mortgage Lenders (CML) revealed that there were 9,400 loans given to first-time buyers in February, up 7% on January. The Royal Institute of Chartered Surveyors (RICS) has also reported an increase in new buyer enquiries for the fifth successive month.
Mortgage lenders too seem to be more willing to lend to those with smaller deposits. HSBC has introduced some new loans available up to 90% of a property's value. Its two-year fix at 4.99% is one percentage point lower than the previous market-leading deal available for those with only 10% to put down.
So if you've been biding your time before taking that first step onto the property ladder but feel the time is now right to take advantage of recent price falls, we've got some tips:
Check what mortgage you can get before you start house hunting
There's nothing worse than finding your dream home and then discovering you can't get the loan you need to buy it. With lenders still wary about who they lend to and how much they lend, this is a bigger risk than in the pre-credit crunch days.
How much you can borrow is affected by a number of factors - your salary and the salary of anyone you're buying the home with; your credit history; the size of your deposit; any additional contributions; and more. You can compare mortgage deals online but if you don't fully understand what it is you're looking for, an independent advisor will be able to help.
Once you have been pre-approved for a mortgage you will be in a much stronger bargaining position when you are shopping around for a home. Many sellers are eager to move on and if they know you have the finances in place for a quick sale they may be more willing to negotiate.
And even once you have a mortgage agreed in principle, there's no major rush as mortgage offers tend to remain valid for between three and six months (this does vary between lenders so check).
Don't overstretch yourself
The number of people defaulting on mortgage payments has risen significantly over the past year or so. This is partly down to the increase in unemployment - if you lose your job, mortgage payments that a few months ago were easily affordable now no longer are. However, another factor is that some people took on more debt than they could realistically afford to repay.
On the one hand, the caution that now exists among banks and building societies means you may not be able to borrow as much as you would have been able to a few years ago, but there is also a responsibility on you, to ensure that you do not over commit.
Sit down and look at your outgoings to work out how much you'd be able to afford in mortgage repayments each month - and be realistic. You will still want a social life and to be able to buy that new pair of shoes or latest computer game now and again, so don't pretend you'll be able to live totally frugally.
Remember, if you get it wrong and find you are unable to meet your mortgage repayments, you risk losing that home you've been dreaming of for so long.
Remember the additional costs
You might have been saving hard for the last few years to build up a deposit, but you won't be able to put all of that money down. There are other costs associated with buying property: mortgage arrangement fees; survey and legal costs; home insurance; and stamp duty (this is payable on properties above £175,000). Then there's the furniture you'll need to buy and you may need to spend money on building work or renovations. These costs all mount up so make sure you've got them covered.
Also, don't forget there will be other monthly bills to pay as well as the mortgage. If you've been renting you'll be aware of these but if you've been living with parents, the cumulative cost of things such as council tax, water, gas, electricity, TV licence, broadband and phone can easily be overlooked.
Research thoroughly
As a potential buyer, the power is in your hands at the moment. With many properties having been on the market for months, some vendors may be desperate to sell and as a result be prepared to negotiate on the price. And even if the property you like is new on the market it doesn't mean there isn't room to haggle.
It's well worth taking the time to monitor what's been happening to house prices in the area you're looking to buy. Look at what else is on the market; find out how long the property you're interested in has been up for sale; ask why the current owner is moving (if they need to relocate because of a change in job they'll need to move pretty quickly in which case they may be more willing to negotiate on price than someone who is in no rush to move). Other things to investigate include what similar properties have sold for in the last few months (you can find this information from the Land Registry), and indeed whether many properties have sold: if the market has been pretty stagnant in that area, again, it puts you in a stronger position as the owner, and the estate agent, will want to secure a sale.
Consider buying at auction
Property auctions traditionally tend to attract professional investors as the lots that come up often need significant work and unless you know what you're looking for when you view a property, if you're not careful you can end up owning something that just swallows cash as you seek to get it in a habitable state.
However, that is changing. House repossessions are soaring - 40,000 properties were repossessed during 2008, up from 25,900 in 2007. Many of these are coming to auction and being sold at knock-down prices so it could be a great opportunity to bag a bargain, particularly as it is not only homes in a poor state of repair that are coming under the hammer.
There's been a huge increase in the number of city centre flats being sold at auction - many were bought new by buy-to-let investors who then failed to keep up with their mortgage repayments because they couldn't get tenants, or were forced to accept much lower rents than they'd been expecting. There have been instances of some flats being sold at auction for 60% less than they were bought for a few years ago.
If you decide to go down this route however, it is more important than ever to be prepared. Decide the maximum you are prepared to pay for a property and stick to it. It's easy to get carried away when the bids are flowing thick and fast. Also remember that you'll need to put a deposit down on the day and you are then committed to completing on that property, so get a survey done and your mortgage sorted out beforehand.
Take advantage of first time buyer schemes
With the number of first time buyers having fallen to record lows, a valuable life blood has been sucked out of the property market. The Government and house builders are therefore desperate to get these people buying again. As a result there are a number of initiatives aimed at first time buyers.
There are a number of Government-backed shared equity schemes called 'Homebuy', which are worth looking into. Shared equity is where you own a proportion of your home and the Housing Association, or mortgage lender owns the rest and you pay rent on it.
House builders also sometimes offer their own shared equity initiatives or other schemes, such as paying your deposit, or stamp duty. These are obviously designed to encourage people to buy one of their properties rather than going elsewhere.
If you're thinking of buying, it's well worth investigating what's available.
Finally... there's no rush
Falling house prices have undoubtedly benefited first time buyers and the chances are you'll be able to get a much better deal on a property than you would have done a year ago. Even so, this doesn't mean you need to buy now.
When house prices were rising many people felt pressured into buying their first home as quickly as possible out of fear that prices would be out of reach if they waited for six months. That is no longer the case so only take the plunge if you are confident you can really afford to and find a house or flat that you really want to live in. If you're not 100% sure, then hold off for a bit longer - it'll give you chance to save a bit more and you may find that you get an even better deal when you do buy.
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