First time buyers in the UK failing to take advantage of low prices and loans, report shows

by Ray Clancy on August 24, 2010

Despite low prices of homes and loans, many first timers fail to avail

Improved affordability means that first time buyers in the UK are more able to take advantage of low property prices and loans but are failing to do so, research shows.

Only 35% of first-time buyers are taking advantage of an easier market and over half say they cannot afford to do so despite monthly mortgage payments as a percentage of income are nearly half that of the level of 2007.

Yet the research from the Halifax, the UK’s largest first time buyer lender eight out of ten first time buyer mortgages were approved in first half of 2010 and 94% of first time purchases are exempt from stamp duty.

Indeed, the proportion of a typical new home owner s disposable earnings devoted to mortgage payments has almost halved from a peak of 50% in June 2007 to 28% in June 2010; below the 34% average over the past 25 years.

In addition to this, 94% of first time property purchases are now exempt from stamp duty, with 54% of first-time buyers saying that is has helped them to purchase their home.

Despite the marked improvement in monthly affordability, tightening in lending criteria since the onset of the credit crunch in 2007 may have deterred first buyers from trying to secure mortgage finance, the Halifax says.

There are now indications though that the environment is improving. Only 3% of first time buyers say a lack of suitable mortgage products has prevented them buying a home and eight out of ten first time buyer mortgages are approved.

Whilst deposits in loan to value terms increased during 2008, the average deposit put down by a first time buyer today has been unchanged as a percentage of purchase price since early in 2009.

‘We believe it’s important that first-time buyers understand that whilst there are still challenges in raising deposits, other market conditions are more positive. Affordability has significantly improved, meaning the amount of a typical first time buyer’s monthly pay packet that needs to be dedicated to their mortgage is now below the 25 year average and importantly, despite perceptions, eight out of ten first time buyer mortgages are approved,’ said Stephen Noakes, commercial director for mortgages at the Halifax.

The research also shows that the typical buyer takes between three and five years to save their deposit in the current market and seven in ten are making lifestyle sacrifices in order to save for their deposit. A 10% deposit on an average first time buyer property today is £13,940.

It also found that 64% of buyers purchase a home because they’d rather own than rent. While nearly a third of first time buyers are stepping onto the property ladder in order to take the next step in life such as getting married or having children.

One in ten buyers is putting off getting married or having children in order to buy a home while 12% are taking a second job to help their finances.

Over a quarter of home buyers have not been on holiday in over a year to save money for a deposit, some 10% move back in with their parents to help save for their deposit and 44% of buyers will compromise on the area they move to in order to get the type of property they want.

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