First Time Buyers

by on 17·05·2016

Backed by the bank of mum and dad and a range of government-backed schemes, mortgage lenders are once again encouraging first-time buyers. The number of deals available for first-time buyers with very small deposits has greatly increased in the last year alone and shows no signs of slowing. This is all happening at the same time rates have fallen.

As a result, first-time buyer purchases are up over 10% in a year. To borrow has become cheaper and rates are falling. The average first-time buyer today is on a rate almost one percent lower than at the same time last year.

Barclays have recently announced the reintroduction of 100% mortgages for the first time since the recession. A look at the Barclays deal reveals that, as well as being more expensive, and involving an affordability check, the 100% mortgages come with associated T&C's; there needs to be some form of Guarantor in place who can stump up 10% of the property price, which sits in some form of a cash deposit. This is returned with interest, after 36 months, if the borrower hasn't defaulted on the mortgage.

Then there is the Government's Help to Buy scheme, where first-time buyers can borrow up to 20% of the value of their property from the Government. This is also growing, with borrowers borrowing more, and now regularly borrowing for terms of up to 35 years.

The encouraging of people to borrow more and more, in more ways than one is very reminiscent to the practises and downfall that led to the crash following the Northern Rock fiasco. First-time buyers are taking more and more risks to get onto the property ladder which is seemingly being encouraged by the Government.

The risk associated with small or zero deposits is falling into negative equity. This can have a major impact on any potential for future plans. Whether it be to move, buy again or sell on.

If your property is in negative equity, you could find yourself in an uphill battle which takes a lot longer to climb to the top of than your original plans. First Time Buyers are being encouraged to buy at any price, whatever the cost, and whether the recent level of house price inflation can be sustained is a totally different question altogether.

Rates are significantly lower now than they were in 2010 - almost 2% lower for a typical fixed rate product. However, going forward, and any seemingly small rate increase could have a huge adverse effect on these high borrowers. Rate increases are predicted to occur in December 2019 and even without a Bank Rate rise, lenders could still impose higher rates on their own terms.

So, is property still a good prospect? Simply put, yes.

Property was one of the top-performing asset classes of 2015, with a return of 13 - 14% for the year. This is quite significant in comparison to that of other asset classes over the same period. UK government bonds returned approximately 1%, while UK equities were down 1%.

For 2016, there will still be notable advantages achieved through investing in property, however, as a first time buyer, the risks are still very much at the forefront. When investing, property becomes a great asset which can help to diversify a portfolio, especially over the longer term. Property, over the years tends to increase, albeit, with its own innate risks associated. However, if you're a purchasing your first home and plan to hopefully make money from this so you can expand and grow at a later date, you must not get caught up in the hype. This is where the Bank of Mum and Dad often help...

According to data from Legal & General, Children in the UK will borrow a total of £5billion from their parents to get them on the property ladder in 2016. This equates to financing 25% of all UK mortgage transactions this year.

The financial mountain that young people are expected to climb in order to own a home is taller and steeper than it was for my generation, and does not look like it is slowing. This is often helped at the detriment of the parents, who are now often reporting downsizing or moving to a less desirable area in order to help their children out with finances. Parents are expected to give their children an average of £17,500 this year to help them get on the property ladder.

If you are one of the lucky offspring who can obtain financial help by way of your parents or other means then this can give you the helping hand and boost you need to become a property owner. This equity - even in small percentages will hopefully give you the desired deposit or at least something towards it, to give you an element of protection in the ever changing market conditions. Property, at the end of the day is an investment, and therefore has risks associated. Whether these risks are on your own back or reduced by the assistance of your parents, they still exist and a property and mortgages can still be a bitter pill to swallow if you happen to buy at the wrong time.