First Timers

It is thought that only around 2% of prospective mortgage buyers will be unable to get a mortgage following the sub-prime crisis.

It will be the first time buyers in the sub-prime sector that it will affect as several lenders have now pulled out of this market. It is rather a worry that they have just pulled the plug on this type of mortgage rather than finding ways round the situation and price accordingly.

The best thing to have been done is that Lenders have stopped lending to sub-primes with arrears.

First Time Buyer’s Are Back

The slowing of house prices has encouraged first time buyers back to the market. In August first time buyers rose to 40% that is an increase of 3% and is the highest this year.

First time buyers are borrowing more money to get on to the property ladder and high loan-to-value mortgages increased to 22%.

Things Worse for First Time Buyer’s

A housing affordability and accessibility update shows the cost of buying a home has increased by 8.4% this year and since 1996 it has risen 350%.

The percentage of take home earnings used for mortgage repayments has gone up 6% since last year. First time buyers in the lower earning quarter could pay out 95% of combined take home pay to afford a property. This rises to 100% in the Southwest or the Southeast If lenders find it necessary to tighten their criteria this situation could get even worse.

House prices have risen over 11% a year since 1996. These have forced buyers to borrow higher amounts Possible interest cuts in the second half of 20008 may lessen the burden placed on first time buyers.

If first time buyers are unable to secure a mortgage, prices will have to come down or at the very least remain stable.

New Shared Schemes

The Housing Corporation has launched two new products to help key workers and priority first time buyers to help buy their own homes.

The first, MyChoice HomeBuy allows applications for a mortgage with any lender whilst up to 50% of the property value is an equity loan. Borrowers pay 1.75% pa on the equity loan funded by one of eight housing associations. The mortgage rate will depend on product chosen. Deposits are optional and when the property is sold the equity provider will get a share of any increase in the value of the property.

This is considered to be a tried and tested product

The second is Ownhome and is a partnership between Places for People and the Co-operative Bank Places for People will lend 20 to 40% of the property value and the Co-operative Bank will offer mortgages on the remaining 60 to 80%. A deposit is not compulsory and the buyers will own 100% of the property meaning there will be no rent or landlord to pay.

No interest will be paid for the first five years on the Places for People loan. After this period 1.75% interest pa will be required until the eleventh year of the loan when the rate rises to 3.75%pa for the rest of the loan period.

The Co-operative Bank says they are pleased that they have been chosen to help people to own their own property.

The Building Societies Association say it is a good idea to allow people to own a 50% of their property buy expect to see a low response mainly because of the problems saving for a deposit.