Affordability is the key
NEW buyers must weigh up the pros and cons before deciding to enter the housing market at the moment, experts point out.
Louise Cuming from price comparison service Moneysupermarket.com warns that first-time buyers are not immune from the lack of confidence sweeping the nation.
“There is certainly a fear about taking the decision to make the most expensive lifetime purchase amid the turmoil of the credit crunch,” she said.
“For this reason, affordability needs to be the main consideration.”
The good news is, the base rate of interest has already fallen by 0.5 per cent this month, and with economists expecting further aggressive rate reductions — potentially to as low as 2 per cent over the next year — this should also make mortgages more affordable.
But David Hollingworth from London & Country warned that, while property prices have become more accessible to first-time buyers, lenders are continuing to demand sizeable deposits.
“Lenders are getting tighter on their maximum loan-to-values (LTVs), and many will not lend above 85 per cent,” he said.
Melanie Bien, from Savills Private Finance, added that the best rates and choice of deal were available to those with a deposit of 25 per cent or more. “This is beyond most first-time buyers — so affordability is still an issue,” she said.
Banks are worried that if they lend 90 or 95 per cent of a home’s value, their customers could be left in negative equity should the property market decline further, putting the lender’s money at risk if it has to repossess.
