by Mark Johnston
In our last article in the series reviewing the year ahead. Mortgagerates.org.uk take a look at what lays ahead for first time buyers and those looking to invest in a buy to let property.
With the property market in the state that it is and the mortgage market looking no better ahead of the Financial Services Authority (FSA) mortgage market review many are turning to the private rental market.
Many first time buyers have been either priced out of the market or are unable to raise capital to buy their first home. This has resulted in many having no option other than to remain in rented accommodation for the foreseeable future. This additional demand has put further pressure on the rental market, and with so few properties available this has resulted in an increase in rents.
Following the financial crisis, many lenders dropped their buy to let products as they were deemed to be too higher risk but a couple of years on many are now opening the market back up with some great deals.
This availability of buy to let mortgages is already driving an increase in property purchased for investment. Savvy investors are looking to capitalise on rising rents and falling house prices. This has resulted in a large increase in buy to let purchases when compared to a year ago.
This may sound like great news for those trying to sell their homes but it isn’t. Buy to let investors tend to only look at the lower end of the market where a deal can be done. Its also worth remembering that the buy to let market is only very small when compared to the total number of mortgages and houses sold. This means that the overall number of property sales will most likely remain weak especially since the biggest segmant of the market, first time buyers, has been effectively shut out of the market altogether.
The biggest problem for first time buyers at the moment is the size of the deposit that is required to secure lending. Most banks and building societies are asking for at least a 25% deposit to be able to secure a decent deal. With property prices still comparatively high, the average home in the UK costs around £160,000, first time buyers would need a £40,000 deposit. Even those lenders who are offering 90% loan to value mortgages, a deposit of £16k would be needed and they would get pretty poor rate so the cost of borrowing would be high.
Norwich and Peterborough Building are offering one of the best mortgages at the moment for first time buyers. Their two year discount mortgage is 2.59% with a fee of £995. The mortgage has a loan to value of 85% meaning a 15% depsoit would be required.
For those with a small deposit, Hinkly and Rugby building society have a lifetime discounted rate of 4.64% with a £1090 fee and a 90% loan to value.
Story link - First Time Buyers and Buy to Let Mortgages in 2011
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