Help for First Time Buyers

by Mark Johnston

We commented recently about the potential decision by the Bank of England (BoE) to keep interest rates at a record low. With the pound struggling, the recovery still fragile and a new budget expected to be delivered by the government; on Thursday the BoE’s Monetary Policy Committee has maintained the low rate of 0.5%. Keeping this status quo for the last two years has been bad news for some groups and good news for others, first time buyers are amongst the winners this time.

A recent survey, commissioned by an insurer, revealed that 75% of Ministers of Parliament (MPs) feel that people, with stable incomes and can afford repayments should be helped onto the property ladder. This financial assistance should be provided even when those individuals don’t have the 10-20% deposit required.

Additionally, the same survey revealed that over 83% of MPs feel that their constituents need more support getting into the housing market. In London, it was suggested that this figure is closer to 100% of constituents will need support, a staggering figure.

This is great news for first time buyers, there is now clearly a light at the end of the tunnel, banks and building societies are also now responding. With the deposit remaining the biggest barrier to homeownership, it’s pleasing news to see a market reaction. The average deposit has risen from 10% to 21% in recent years but currently there are over 200 mortgage deals that will lend 90% of property value, last year there were less than 150. These LTV deals represent only a fraction of the deals that were available before the Credit Crunch began in 2008.

Northern Rock will be helped back into the private market by Deutche Bank, they are currently in consultation on the size and scope of the issues at hand and will move forward together. Deutche Bank is receiving a flat fee for this work but given their reputation, I’m sure the fee will be money well spent to ensure a steady hand in Northern Rocks recovery.

Norther Rock has made a bold move recently in allowing itself to offer loans to first time buyers. This move shows the confidence they have in their strategy and represents a concerted effort to a somewhat risky tactic but one that will return them to profit.

The president of mortgage insurance for Genworth Financial in Europe; Angel Mas commented that “The return of high loan-to-value lending is vital if we are to unlock the market for those with a sound credit profile, but who are unable to save for a deposit in the near term”. This shows the high profit nature and MPs support shows it part of a considered political and economic strategy

First time buyers will need to chose the best deals for their situation, with the new budget pending and low interest rates currently a high LTV tracker mortgage may be what most people would decide to take. Take note that interest rates will go up so chose a deal that will ensure stability.



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