Mortgage Column

10 reasons not to be a first-time buyer

Thursday, 23 July 2009

By Seamour Rathore seamour@consumerchoices.co.uk

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It’s no fun watching your property’s value dwindle, but who would trade places with a first-time buyer in this market?

It’s probably the worst time ever to be thinking about entering the property market. House prices may have gone down around 20% in the last 18 months but, according to the Council of Mortgage Lenders (CML), there has been “no improvement in the underlying affordability position of first-time buyers”.

Home ownership hopes are being crippled by job insecurity

Not surprisingly, the CML's official research shows although appetite to enter the housing market has been dampened in the near-term, most people, bless them, still have long-term aspirations of home ownership.

Here are 10 reasons why only the brave are first-time buyers (FTBs) now:

1. Job insecurity

Unemployment is rising swiftly and brutally. 281,000 more UK workers became unemployed in the three months to May according to the Office for National Statistics (ONS). UK unemployment stands at 2.38 million.

But what’s crippling for the home ownership hopes of so many is the fear of job loss. “Better not to take the risk on buying a home and sit it out instead,” sums up the thoughts of many.

2. Uncertainty over interest rates

Interest rates can only go up from their current historic low of 0.5%.

While most commentators believe we’ll be bumping along the interest rate bottom for another year (well, that’s as far into the future as they’re prepared to predict), the reality is that in the long-term – and we don’t know when – rates will start to creep up. And when they do, how far up, and for how long will they keep rising? Predictions please…

3. Confusion over house prices

They’re going up, no they’re going down. Who knows what’s really happening to house prices now?

A recent survey has said there’ll be no improvement in the housing market until 2020. Other “experts” and estate agents keep pushing the idea that we’re at the bottom of the market, so it’s a good time to buy. No wonder FTBs are confused.

4. You’ll need a £34,200 deposit

Since the turn of the year, deposits for first-time buyers have been in the 25% region. With the average first-time buyer’s house price £137,013 in May 2009, that means they'll need a spare £34,200 kicking around, for any chance of a decent mortgage deal.

No wonder 80% of first-timers are turning to the Bank of Mum and Dad for financial help to buy.

5. 3% premiums on mortgages

Mortgage lenders are doing what they’re good at – finding ways to make money out of their customers.

Pre-credit crunch they were happy to make half a percent over the base rate for lending on tracker mortgages. Now they are charging 3.25% over the base rate. And their margins are even bigger if you want to fix your mortgage.

6. Deals are falling through

Even if the plucky FTB finds a house, scrapes together a chunky deposit and believes they can get a mortgage, one in 10 of home deals are falling through according to a Royal Institute of Chartered Surveyors study for The Times. It seems that when push comes to shove, the banks will only lend to the very low-risk.

7. Learning to live on a budget

It does rather take the shine off the idea of buying a property, when you realise you won’t be able to spruce it up with some new fixtures and fittings when you move in. After you’ve saved the necessary 25% deposit, will there be any money left to “improve” and furnish your property? The days when you could notch up a few grand on a credit card, or take out an unsecured loan at reasonable rates with a couple of clicks of a mouse, are long gone. Sadly, first-time house buying = living frugally, just like our parents did. Not fun.

8. Negative equity

Around 7-11% of homeowners are in negative equity according to Bank of England and CML estimates. It puts a bit of a dampener on the idea of getting on the property ladder if the next thing to happen is that your house will fall in value. Of, course that 25% deposit should shield you initially. But even so, while we’re used to it with new cars, who wants to spend £130,000+ on a depreciating item?

9. The rental market looks cheap

Because so many people are choosing to rent their properties out rather than sell at what they perceive to be a loss, there is plenty of supply in the rental market. And that’s forcing prices down. If only letting agents, with their lackadaisical approach and punitive fees, could be eliminated entirely from the rental process, no prospective FTB would even be contemplating buying.

10. That nagging feeling you’ll be left behind if you don’t take the plunge

Ah, the psychology of capitalism. Perhaps the worse factor for a FTB is that nagging feeling that if you don’t buy a house now, you’ll be left behind. Property website Rightmove reported its busiest week at the beginning of July – 134 million page views. That’s a lot of people listening to their nagging voice.