Warning bell for buyers
ENTERING THE PROPERTY MARKET
FIRST-TIME buyers are facing a perfect storm of bad news, which could make getting on the property ladder even harder than before the pandemic.
Hopes that falling house prices would make property more affordable have been dashed, as prices climbed 3.8 per cent in the year to July, to an average of
£241,604, latest Halifax figures show.
The jump is largely down to Chancellor Rishi Sunak’s stamp duty holiday on properties up to £500,000, saving buyers up to £15,000.
First-time buyers have benefited from a £300,000 stamp duty exemption, however they lost a competitive edge as home movers, buy-to-let investors and overseas buyers all qualify for the new holiday.
Lindsay Judge, principal research and policy analyst at the Resolution Foundation, said the crisis has also hit the education, career prospects and incomes of young people: “Falling incomes and credit restrictions make home ownership every bit as difficult as before.”
Kevin Mountford, co-founder of savings marketplace Raisin UK, questioned whether a recession is the best time to enter the housing market anyway: “With increased job uncertainty, be sure that your employment and income are secure.”
First-time buyers with small deposits may struggle to get a mortgage, as many lenders are reluctant to offer deals up to 90 or 95 per cent loan-to-value (LTV), in case house prices crash next year.
Those who are lucky enough to get help from parents or grandparents may then get hit by lender Nationwide’s move to crack down on “gifted deposits”.
Buyers must show they have saved 75 per cent of the deposit themselves, a major blow because Nationwide is one of few that lends to 90 per cent LTV.
However Saffron Building Society senior product manager Laura Bright said do not despair: “Gifted deposit mortgages are still available from other lenders, so contact a mortgage broker.”
Even if you can qualify for a 90 per cent mortgage, you will pay more every month than those with lower LTV deals.
Nationwide’s new five-year fix charges 3.24 per cent for five years, with a product fee of £999. However buyers with a 40 per cent deposit can get a five-year fix from HSBC at just 1.34 per cent, with a £999 fee.
Somebody with a £150,000 capital repayment would pay £589 a month with HSBC, some £141 a month less than on the Nationwide deal.
Mortgage Advice Bureau head of lending Brian Murphy said one bright spot is that the Government aims several schemes at first-time buyers.
The Help to Buy Equity Loan Scheme lends first-time buyers up to 20 per cent of the cost of a new-build home, free of interest for five years.
The Lifetime Isa, which gives you a 25 per cent bonus on the money you save, is worth a maximum £1,000 if you put £4,000 away each year. “Save, save, save and you could be in for a lucrative bonus,” Murphy said.
Look out for shared ownership schemes: “You buy a proportion of the property, say 25 or 50 per cent, and pay rent on the rest of it. You can slowly buy more of the house until it is yours outright.”
Getting on the property ladder is hard... but not impossible.