First time buyers could face bleak home ownership prospects due to LTVs
January 22, 2008
Over recent years things have not been easy for first time buyers in the UK. With property prices soaring many first time buyers quickly found themselves priced out of the market altogether, unable to afford to raise a mortgage for the amount needed to purchase even a modest property in some areas. Banks and building societies tried to ease the situation by offering higher income multiples so that first time buyers could get onto the property ladder, even though this meant that they were saddled with huge levels of debt.
However, despite this move things continued to get worse after the Bank of England applied a series of five interest rate hikes to the base rate within the space of a year, taking the rate from 4.5% to 5.75% - although it has now fallen back down to 5.5%. This meant that even with the higher income multiples and longer repayment periods that many lenders were offering to increase affordability for first time buyers, they were now stuck with having to make unmanageable repayments on their mortgage loan because of the interest rates charged.
Just as the interest rate has started to come down, after a 0.25% cut in December, there is more bad news for first time buyers. In the past, first time buyers have been able to get a 100% mortgage, enabling them to purchase a property without having any upfront deposit. However, many lenders have now taken their 100% mortgages off the market in light of current credit conditions. To make matters worse, some major lenders, including the Alliance and Leicester and the Brittania, have increased the amount of deposit they require from 5% to 10%, meaning that borrowers will need to put down double the deposit in order to get their mortgage.
Richard McVey
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