The Inside Edge
First Time Buyers Braving the Property Ladder Again
The property ladder; it’s all swings and roundabouts. Last week we reported a sharp increase in homeowners defaulting on their mortgage and this week we’re reporting a rise in mortgage approvals! Something had to give somewhere and mortgage lenders seem to be reviewing their lending restrictions to kick start borrowing on their products and get things moving again.
Mortgage Approvals On the Rise
Mortgage approvals rose sharply in March by 4.3% and this actually shows the third consecutive month of growth. Cheap property and smaller deposit requirements has encouraged first time buyers to grasp this perfect opportunity to start buying property. The Christmas period was sluggish as is often expected around this time of year, but since this time cheaper properties (those up to £125,000 in price) have shot up in the mortgage approval stakes.
Higher LTV = Less Deposit
These figures have been put together by the Chartered Surveyors’ monthly report and show some hope of recovery in the housing market. Mortgage lenders are beginning to increase the amounts they are willing to lend and this has seen the average loan to value increase to 60.8%. That’s the highest level it’s been at in three years. In March the average LTV was 56.2%. This means lenders are beginning to lend more of the property’s value and this means first time buyers need to scrape together a lesser deposit.
March – a ‘Cheery’ Month for Mortgages?
According to the Council of Mortgage Lenders, the average mortgage for a first time buyer was £100,000 and the average monthly payment on a £110,000 repayment mortgage was £556. Historically, March is a good month for the property market. The slump over the Christmas and New Year period is over and people start planning for the future once again. Rents are also reaching record levels and with higher LTV mortgage products available for low risk borrowers, it seems a good time to get onto the property ladder and make that leap.
The Government recently introduced a new deal called ‘FirstBuy’. This initiative is planned to help struggling would-be homeowners to buy their first property. However, initial findings have reported that this initiative is fairly restricted in scope and only applies to new-build properties. Whilst this is great for housing developers it’s a mere drop in the ocean towards the bigger problem of selling homes that do not fall into this category.
All good points raised just a couple of observations on this subject. Looking at it from a Removers perspective the governments initiative ‘Firstbuy’ announced in the last budget although helping a few first time buyers does little to stimulate the Market as a whole. To get the Market moving first time buyers need to be encouraged into properties at the start of chains of people moving. Moving into new has the opposite effect on the market as much needed first time buyers may be in effect removed from the Market.
My other point is that the restriction of mortgages particularly from mid 2008 but probably earlier has forced a generation of potential buyers to rent or stay at home and save, these savings and the mortgage companies loosening of the regulations may help create a fresh influx of first time buyers. Hopefully they won’t all buy new houses or flats!
Higher LTV and approved mortgages might appear to be good for the market, but it does come at a long term cost. At the moment, high LTV lending is simply supporting house prices – when interest rates begin to rise and the High LTV’s become quickly unaffordable – that’s when the problems start.
This, coupled with the relaxing on stamp duty to encourage buy to let on an institutional scale is just leading to the death of the first time buyer as we know it.
Wait – be patient, house prices will come down because the market cannot be supported sufficiently until earnings and employment catch up.