by Mark Johnston
The property boom has long since burst and has now been replaced with a housing market that has taken a severe battering.
Buying a house in today’s current economic climate is a difficult challenge. The latest data reveals that while the costs of deposits have increased tenfold in the last 20 years, household incomes have only doubled.
It now takes an average of 40 months for aspiring home owners to raise enough money for a deposit.
As average housing deposits reach a whopping £37,375, 17% of the overall property value, a third of non-home owners believes they will never be able to own their own home.
Funding a deposit still remains the biggest hurdle to home ownership, therefore buyers are now prepared to do anything it takes, including taking on additional debt in order to cover a deposit.
As interest rates remain low, making mortgages repayments relatively cheap, many first time buyers are prepared to take on further debt.
Research carried out by Santander found that approximately 28% of first time buyers are either taking on a second job or doing overtime in order to raise the cash needed to get on to the property ladder.
It also showed that another 27% of first time buyers said they will raise the deposit money by taking out an unsecured personal loan.
A similar survey carried out also suggested that one in ten first time buyers are so desperate to raise a deposit that they are prepared to use a credit card in the hope that they will be able to pay the amount back at a later date.
Phil Cliff, director of Santander mortgages said “the housing market is a tough place, particularly for first time buyers, it is no wonder people are becoming increasingly more resourceful when it comes to raising the deposit”.
The Bank of England has also reported that there has been a steep rise in the size of unsecured loans taken out to fund mortgage deposits.
Many financial experts believe that buyers choosing to use personal loans or credit cards to pay deposits could easily worsen their already fragile financial situation.
First time buyers could therefore find themselves facing serious long term credit card debit problems by turning to plastic.
Melanie Bien, director at broker Savills private finance says “there has been anecdotal evidence of buyers seeking unsecured loans to secure a property, but the risks of taking on even more debt are not recommended”.
David Hollingworth at broker London and Country adds “it is not just the extra expense that will affect you; there is also the damage to your status as a borrower”.
Steve Lees, director of smart new homes recommended that first time buyers who are struggling to save for a deposit, firstly take a more comprehensive look at all of their other options before loading themselves up with more debt.
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