First-time buyers are being locked out of property market

WITH the banks reducing the number of low-deposit mortgages (10 per cent and below) since Covid-19 hit in the spring, the number of first-time buyers has been decreasing quickly. That means many of those buyers wanting to take the first step on the property ladder will stay in the rental sector.

This has caused demand to grow among renters for larger homes to ride out Covid, as they hunker down to wait for normality to return to the property market.

Interestingly, the opposite is happening in Central London, where the rents tenants are having to pay have dropped by 3.8 per cent in the last 12 months, as demand has dropped like a stone.

It appears Central London tenants are looking to move out to the suburbs, in search of bigger homes, gardens and green open spaces.

This is a reverse of the trend of the 2010s when the London property market was shooting up while the rest of the country was in the doldrums.

So, why are the banks curtailing the number of lowdeposit mortgages, meaning that first-time buyers must find a much larger down payment before they are able to buy their first Newbury property?

The reason is the banks are fearful of a house price drop.

They too are afraid of the frothy nature of the property market since the end of the first lockdown. The bank is lending its own money to buyers and no mortgage lender wants to be holding an enormous amount of these types of high-percentage mortgages if house prices fall in 2021 as the bank would be saddled with negative equity and repossession.

This can clearly be seen in the pricing and availability of low-deposit mortgages.

As the Bank of England has reduced its base rate to 0.1 per cent, in the last 12 months 10-per-cent deposit mortgages rates have increased from two per cent to 2.8 per cent.

Also, when lenders have been offering 10-per-cent mortgages throughout the summer, borrowers have had only a 24-hour window to commit before the lender withdraws the product from the market because of over-subscription.

That extra 0.8 per cent doesn’t sound a lot until you realise a first-time buyer would have to pay an additional £167 per month in interest on a 10 per cent deposit mortgage, assuming they borrowed £250,000. However, it’s not all doom and gloom as there are signs that the 10 per cent deposit mortgage market could be returning to normal.

This means those landlords with properties with gardens and larger rooms will see increased demand. One final thought though for all homebuyers – be aware it’s going to be challenging to get your house purchase through in time to meet the March 31, 2021, stamp duty holiday cut off if you are starting now. Make sure your lender and solicitor have the capacity to meet that deadline and when you are asked for information, you drop everything to provide it.

The odd days’ delay here and there will mean the difference between you getting into your new home before the end of March and saving thousands of pounds in Stamp Duty.