Hard times ahead for first-time buyers
A first-time buyer couple on a low-income must save a years take-home pay to buy their first home, say surveyors.
A couple in the bottom quarter of earners in the United Kingdom needs £27,738 to pay in advance fees, according to the Royal Institution of Chartered Surveyors.
Affordability has improved for those who are able to get on the housing ladder, the group said.
But the credit crunch has made it more difficult to climb the first rung.
“Access to the housing market has deteriorated as the credit crunch seized mortgage lender sector,” said RIC’s senior economist David Stubbs.
“With the decline in mortgage approvals, the situation does not look like improving in the latter part of 2008 and first time buyers will find their path to homeownership increasingly blocked.”
Mortgage Costs
Mr. Stubbs said that those who are able to find a larger deposit to benefit from a reduction in mortgage repayments as a result.
But he added that rising fuel and food bills means that household finances would remain strained.
The Council of Mortgage Lenders said that in May the average first time buyers mortgages stood at £113,500.
Rics believes that a low-income couple jointly earning £27,316 per annum after taxes, would need all of this for expenses such as a deposit and fees on a first home.
This was much higher than the 21% of their income they would have needed to get on the property ladder in 1996.
London is the most difficult area to enter the real estate market to low-income couples, followed by the south-east, east and south-west of England.
Scotland and the north-east and north-west England are most accessible.
Affordability
Larger deposits and the decline in prices means those low-income couples who have one foot was found that affordability has improved in April to July this year.
They should spend 34.5% of their take-home pay on mortgage repayments, down from 37.2% during the first three months of the year and lower than the record level of 46.5% at the end of 1989.
The figures come as Woolwich - the mortgage arm of Barclays - cut part of its fixed-rate mortgage deals by up to 0.3%.
Broker John Charcol also unveiled a two-year follow-up to deal with high-value mortgage loans with a record fee provision of up to £137,500.
Borrowers are offered an interest rate of 0.01% below the Bank of England base rate, available on mortgages between £ 500000 and £ 5m, but they must pay a fee arrangement 2.75% of the amount borrowed.
Mortgage approvals reach a record low
The Bank of England yesterday released figures confirming the slowdown in the UK mortgage market continues. It said the number of new mortgages approved for house purchases in March fell to a record low of 64,000, down from 72,000 the previous month.
This was the lowest level since current records began in January 1999, and was down 44% on the figure for the same month in 2007. However, credit card and other lending increased in March from February.
The weakening market due to the global credit crunch has caused lenders to put up prices on mortgages and withdraw mortgage deals, especially for those unable to put down a significant deposit, in recent months due to them being more cautious.
Mortgage brokers are warning significant number of lenders have just pulled out of the market completely including some of the big lender groups that have actually got access to funds,
Off the mortgages that are being two-thirds now to the top five lenders compared with 56% this time last year which will likely lead to higher cost to customers due to lack of competition.
House prices
In the UK, property prices have also started to dip during 2008, according to various housing surveys some warning they could drop by as much as 30%.
“The news that mortgage approvals dropped to a record low of 64,000 is hardly surprising given that lenders have been aggressively scaling back on the provision of finance to home buyers,” said Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics).
The Bank of England also reported a drop in loans approved for re-mortgaging, down 11,000 in March from the previous month at 98,000, and for other purposes such as buy-to-let, down 6,000 at 57,000.
Net lending secured on homes was £6.9bn and led to another monthly fall in the annual growth rate, down from 9.4% in February to 9.1% in March.
Lenders much more cautious
The figures come a week after the British Bankers’ Association (BBA) said mortgage approvals for house purchases in March were down 46% on the same period in 2007, the lowest monthly figure since September 1997.
In an attempt to ease banking concerns and help them operate during a global credit squeeze, the Bank of England announced a plan that would let lenders swap potentially risky mortgage debts for secure government bonds.
Lenders how ever have continued to withdraw mortgage offers for new customers, with Nationwide the latest to do so as it announced that, from 1 May, all but two mortgages would require a 10% deposit.
The Bank of England’s Special Liquidity Scheme, if it works, might stop things getting much worse. But many lenders will remain cautious until the situation improves
However the Royal Bank of Scotland (RBS), including NatWest, has moved to buck the trend. From Wednesday, it will cut all its fixed and tracker rate mortgages by between 0.1% and 0.3% for new customers buying directly from the bank’s branches, and for existing customers switching deals.
The bigger rate cuts are for those who offer a bigger deposit, but RBS is also launching a cash back deal for first-time buyers as it tries to increase its share in the mortgage market.
With mortgage deals being so tight if your planing on getting a mortgage or re-mortgage it’s more important than ever to ensure your credit file is completely accurate as the tiniest error could lead in an application being turned or an increased APR costing thousands or even tens of thousands over the term of the loan.
