Clare Francis, mortgage spokesperson at moneysupermarket.com, said: “The housing market has been hugely affected by the credit crunch and economic downturn, and first time buyers have been hit the hardest.
“It's easy to see why nearly a third of non-home owners do not intend to step foot on the property ladder. House prices may have fallen in many areas but they are still high. This coupled with the need for such a high cash deposit is pushing many people out of the market.”
However, there are signs that things are slowly starting to improve, so if you are struggling to buy your first home, don’t give up hope just yet.
While people are typically having to wait until they are older to get on the property ladder, the good news is that over the last year, the number of first time buyer mortgages available has rising by almost 200. That said, the number of deals currently available to first time buyers currently stands at just 1,581, compared to the 14,940 deals available prior to the credit crunch in July 2007.
There has also been a 47 per cent increase in the number of mortgages available up to 90 per cent Loan to Value (LTV), and the average interest rate has dropped by 2.43% since July 2007. But bear in mind that the average deposit required by lenders is 23%. That means if you were to take out a mortgage on a £150,000 property, you’d need to put down a hefty deposit of £34,500 - much more than most first-time buyers are able to afford.
Clare Francis said; “There is still limited choice if you have a deposit of less than 10 per cent, and the rates on these mortgages are around 5.30 per cent, which is significantly higher than the most competitive rates. This also means that the monthly repayments first-time buyers face are often higher than for those who have larger deposits to put down.”
Current best deals for first-time buyers include, Yorkshire Building Society’s two-year fixed rate at 4.09% which requires a minimum deposit of 15%, but comes with a steep £1,995 arrangement fee, and Norwich & Peterborough Building Society’s two-year fix at 4.28% with a lower arrangement fee of £995. This deal is again available to those with a minimum deposit of 15%.
On a positive note, most housing experts claim that house prices are either stagnating or falling, which puts first-time buyers in a stronger position. Don’t be afraid to come in with a low offer on the property you want to buy, particularly if you have managed to build up a decent deposit. First-time buyers who aren’t stuck in lengthy chains are an appealing prospect to sellers wanting to move quickly, so you may find they will consider an offer which is much less than the asking price.
Save save save
The key to first-time buyers securing a competitive mortgage is to save as much as possible towards a deposit. But with many people financially squeezed due to steep living costs, this is often easier said than done.
Moneysupermarket.com research shows that only 5% of those waiting to buy currently have enough money saved, whilst 6% are hoping that house prices will drop further, lessening the amount they need to save. Worryingly, more respondents planned to play the lottery to pay for a deposit (5%) rather than asking for help from family and friends (4%).
But with the odds of scooping the lottery jackpot currently standing at more than 13 billion to one, anyone hoping to get their deposit this way could be in for a long wait. Your best bet is to go through your outgoings and see where you might be able to cut back so that you can save more – could you take a packed lunch to work rather than paying for a sandwich, for example, or cycle rather than use public transport? Any savings you are able to make should go into a high interest-paying account.
If you haven’t yet used your ISA allowance this tax year, then this is the best place to start. The AA’s Internet Access ISA currently pays a competitive 3.35% annual interest on a minimum investment of £500. This rate includes a 1.65% bonus for the first year, so you may want to move your money after 12 months.
Santander’s Flexible ISA Issue 3 pays 3.30% annual interest tax-free and can be opened with a minimum investment of just £1. This rate includes a hefty 2.80% bonus payable for the first year, so again you will need to move your money when the bonus disappears.
Other alternatives include Nationwide Building Society’s e-ISA which pays 3.10% annual interest tax-free and can again be opened with £1, or Kent Reliance Building Society’s Easy Access Cash ISA, which pays 3.02% annual interest tax-free, again on a minimum investment of £1. You need to have a card account with Nationwide to be eligible to open its ISA, and the rate includes a 1.35% bonus until the end of August next year. The Kent Reliance account includes a 2.50% bonus for the first 12 months.
If you have already used your ISA allowance, then choose a high-interest paying easy access account, so that you can get your hands on your money when you need to. Best buys include the market-leading Nationwide MySave Online Plus account which pays 3.05% on a minimum investment of £1,000 and the Northern Rock E-Saver Issue 5 account, which again can be opened with £1,000 and pays 3.01%. These accounts include bonuses for the first 12 months of 1.51% and 1.50% respectively, so you may want to move your money at the end of this period to ensure you continue to earn as much interest as possible on your savings.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.