by Mark Johnston
The property boom in the last few years has left the UK housing market so inflated that many are finding it difficult to find their first home. Property prices have risen to such a degree that the average home buyer cannot afford the initial deposit let alone the interest rates on a mortgages that in some cases is five times their annual salary.
First time buyers are now having to look to their parents to help them get onto the property ladder or spend years saving just to get the minimal deposit on the smallest of houses.
Lenders are all too aware of this pitfall and providing a whole range of products to try and help first time buyers onto the market. Lenders are concerned that the first time buyer market is drying up as many struggle to find the money they need to buy their first house.
Lenders are looking to ever more creative solutions to try and tempt the profitable first time buyers into the market. Traditionally mortgages were taken for 25 years but many lenders are now offering longer terms mortgages, some as long as 40 years. This is not a new thing in other parts of the world where mortgages are taken on that last way beyond the lifetime of a borrower. Instead home buyers take on mortgages which they pass onto different generations of their family. Although this is not something that we are seeing in the UK it may be a sign of things to come.
Other solutions is for borrowers to team up with family or friend to share a mortgage or even take out interest only mortgages that do not pay off the initial capital of the loan and instead just cover the monthly interest payments.
Increasingly first time buyers are looking to their parents to help them onto the property ladder either by providing a deposit, re-mortgaging their family home or using their home as security to take out additional mortgages on a new home for their children.
Although many see their first house as a holy grail it does come with its pitfalls. Higher risk and lower deposits mean lenders are asking for increasingly inflated interest rates which many cannot afford. Although many hope that property process will increase, the recent credit crunch has shown how superficial the market can be and values can go down as well as up.
Many first time buyers that have been lucky enough to get their first home are first with a new dilemma. Instead of asking “Are you willing to do anything to get on the property ladder”, they are now asking themselves “are you willing to do what it takes to stay on the property ladder”.
Those people are now looking at how they can pay their mortgages especially if they have borrowed against their parents house. Many are working additional jobs and extra hours just to make ends meet and avoid repossession. The recent budget has added another worry in terms of job security and future Bank of England base rate increases.
Whichever category you fit into, whether its a wanna-be home buyer or a struggling home owner, you’ve got to ask yourself what risk are you willing to take.
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