Today’s Property Market For First Time Buyers
Several weeks ago, the UK’s Chancellor Alistair Darling declared a freeze on stamp duty for first time buyers who wish to buy a home costing less than 250,000. His move was widely seen as one aimed at wooing voters before the General Election scheduled for May 6, 2010.
Whether the announcement was politically motivated or otherwise, it was welcomed as good news by prospective first time buyers who face many challenges in trying to get onto the first rung of the property ladder.
Aside from the fees associated by buying a property, other barriers young people face include saving up enough money for a deposit. Given the turbulence of the property and mortgage markets over the past two years, lenders are now more restrictive with whom they lend to. The borrower must usually save at least 10 per cent of the mortgage value they wish to borrow, although in reality this figure is often far higher.
As the Communications Manager at the Council of Mortgage Lenders, Bernard Clarke, explains: “On average, now, [the deposit is] 25 per cent of the cost of the property, which is a very significant amount of money for a first-time buyer to acquire”.
The British Property Federation states that it would take the average 25 year old 18 years to save up the typical deposit of 33,000.To overcome this barrier; many are turning to the ‘Bank of Mum and Dad’ and borrowing the deposit from them. Partnerships with friends and loved ones are also becoming more common as people combine their wealth to purchase their first property together.
To counteract this problem, the Government has introduced the HomeBuy Direct scheme. This initiative allows people who would otherwise be unable to afford a deposit to purchase a new build home (designated by the developer) through an equity loan of up to 30% of the purchase price. This is co-funded by the Government and the developer, with the remaining 70% contributed by the purchaser, usually through a deposit and mortgage.
Housing developers are coming up with incentives too, to help make their property more affordable to first time buyers. Barratt Homes for example, the nation’s biggest homebuilder by volume, currently offers schemes like Shared Equity, Head Start and Parent Power to enable first time buyers and key workers to get onto the property ladder.
Philip Youngwood writes on a number of topics relating to property including first time buyers and stamp duty.
