by Mark Johnston
Are First Time Buyers Amassing Debt Again?
Recent figures have revealed that the number of first time buyers in the first half of 2013 is 19 per cent higher when compared to the same period last year.
120,000 first time buyers snapped up a property in the first six months of the year, up from a figure of 101,000 recorded in 2012, and the highest half-year figures recorded since before the start of the financial crisis.
According to a current report by LSL Property Services, there were a total of 26,100 transactions for buyers of first homes in July this year, this figure was up 8,100 from July the previous year, thus making it the highest monthly total since November 2007.
David Newnes, director of LSL Property sales, said “mortgages are much more affordable for first time buyers compared to last year, which has opened the door to thousands of would be buyers who were shut out of the market”.
Economic confidence is returning, nudging many more buyers in the direction of property, and nudging lenders to offer more loans to buyers with smaller deposits.
It seems then that first time buyers are being encouraged to buy a home by the availability of cheaper credit which has been provided by government schemes such as funding for lending and help to buy.
However, some economists and mortgage professionals have raised fears that the schemes are artificially pushing up house prices and borrowing levels, with another housing bubble being the inevitable consequence.
Due to rising house prices it seems that first time buyers are now over extending themselves financially to get on the ladder borrowing larger amounts than ever before, making use of shared ownership schemes, clubbing together to buy, or relying on parents for deposits and as guarantors.
Mark Harris, chief executive of mortgage broker SPF Private Clients, suggests that “Borrowers must not get carried away, buy sensibly and take care not to overstretch themselves.”
Mark Giddens, head of private client services at UHY Hacker Young accountants adds “New borrowers need to ensure that they can afford interest rate rises as current low interest rates will not be around forever. It is important that the new optimism about the housing market does not lead to a return to the reckless lending of the past.”
Alex Maddox of Acenden, a mortgage servicing specialist, also warned: “If we see higher inflation and interest rates without wages growing then we will start to see a deeper and worrying problem.”
Some analysts have predicted that if inflation averages at 2.5 per cent in the next half decade households could see an 82 per cent drop in the cash they have available after repaying their mortgage and other regular demands. Thus meaning borrowers could end up with as little as £56 in disposable income each month.
Therefore all this said Richard Jeffrey, chief investment officer at fund manager Cazenove capital management, has warned that debts now being amassed could be unsustainable and result in a re-run of the previous financial crisis.
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