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are first time buyers in a better position than 2 years ago?
Published: 01/10/2009 |
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Andrew Hagger at Moneynet.co.uk looks at the situation today compared with two years ago for those contemplating buying their first home. Whilst high LTV requirements with stubbornly high mortgage rates may deter many first time buyers from making that first move, news that HSBC is to pump an additional £500 million into mortgages for house purchase up to 90% LTV is a welcome and encouraging sign. The comparison above shows that although raising a 10% deposit is still a big ask, the reduction in house prices seen in the last two years and not having to fork out for stamp duty, make the situation less severe than some would have you believe. The example highlights that if the property has fallen in value by 20% over the last 2 years (a distinct possibility), monthly repayments could be £177 per month lower than if purchasing the same property at the height of the housing boom. So whilst a borrower would have to stump up a bigger deposit (10% instead of 5%) the combination of a lower purchase price, £4258 reduction in repayments over the first two years and not having to pay £1,300 stamp duty would more than wipe out the extra deposit requirement. It’s important that people move away from mindset where we view buying a property as a get rich quick scheme and return to seeing it as a longer term investment, but first and foremost as your home. So if you can raise the additional deposit and accept that your deposit may be eroded in the short term, you are faced with the opportunity owning your first property with a considerably smaller mortgage and monthly repayment than just 24 months ago. Both borrower and lender should be focussing on the affordability of the mortgage rather than purely the potential for the value of the house to fall further, and if it is the prospect of unemployment that worries the lender then why not make it a condition of the advance that MPPI is taken out? Properties are starting to look more attractive; however there is still the fear that if you buy now, you could lose some of your equity over the next couple of years, even though prices seem to have stabilised over recent months. Whilst entering the housing market will still be too scary for many to consider, the government and lenders need to start focussing more effort and funding on the FTB sector if we are to kick start the housing market and ultimately the economy as a whole. ENDS
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