Housing & mortgage round upA number of stories this week confirm just how tough life is for would-be first time buyers wanting to get onto the housing ladder. Rents are rising, so too is the number of people getting into arrears and the amount of deposit required to secure a mortgage is simply unaffordable for many; read on to learn more.

Also this week, mortgage lending has fallen again, and is now significantly below the levels of this time last year, what’s causing such a subdued mortgage market? Again, read on to find out.

First time buyers still struggling

A new report from the Yorkshire Building Society has confirmed just how hard it is for first time buyers to get onto the housing ladder.

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The report found that prospective first time buyers are saving, on average, £248 per month, towards their first house deposit.

When questioned about getting onto the housing ladder, 56% of the would-be first time buyers surveyed said their biggest concern was the size of deposit now required. Other concerns included 40% who said that house prices were still too high and 16% who were worried about their credit rating.

Unsurprisingly the amount of deposit needed varies from region to region, with first time buyers in London needing to save an average of £60,000, with those who live in Scotland and Wales needing significantly less at £16,000 and £22,000 respectively.

Interestingly the survey found that most first time buyers plan to save for their deposit, with only 7% planning on asking their parents for help.

First time buyers have been one of the hardest hit groups of buyers since the credit crunch. Whist they may have been helped by falling house prices and low interest rates, most mortgage lenders have withdrawn their high loan to value deals, meaning that first time buyers are having to save significant sums of money to be able to get a mortgage.

The government’s Funding for Lending Scheme (FLS), introduced during the summer, is designed to make cheaper finance available to mortgage lenders, and it was hoped an increase the number of high loan to value deals available. However, it seems that this has not happened and mortgage lenders have simply reduced the interest rates on mortgage deals targeted at those people who could already secure a loan because they had a large enough deposit.

Rising rental costs cause hardship for thousands

Whilst saving for a deposit many would-be first time buyers live in rented accommodation, but new figures have shown that the rising costs of renting are meaning that many tenants are getting into financial difficulty.

The Money Advice Trust (MAT), which provides advice to people in debt, has said it has received a record 12,000 calls so far this year from tenants struggling with rent arrears. The number of people calling the charity about rental arrears has doubled over the past five years and the trend looks set to continue.

Average rents have risen over the past few years, as first time buyers have struggled to get on the housing ladder and demand for rental accommodation has outstripped supply in some areas. 2012 has seen significant increases in the average rent, with rises in each of the six months to September, taking the average rent paid to £741 per month.

For people wanting to get onto the housing ladder balancing the need to make rental payments with saving for a house deposit is not easy.

Joanna Elson, Chief Executive of MAT, said: “It is clearly difficult for people to save the money for a deposit to buy a house and this has led to more people remaining in the renting market for longer.”

She continued: “Where there is limited supply and greater demand, rising prices will always follow.”

“However, rising rent prices are not only making it harder for people to save for a deposit, they’re also pushing more people in debt.”

“This is a dangerous spiral; with increasing numbers of people entering the renting market, and fewer people leaving it, it is hard to see how the situation will improve.”

Average rents rise to new record

As we have already seen the average monthly rent has increased by 1.1% in September, according to new figures from LSL Property Services.

The average rent paid by tenants is now £741 per month, up 3.2% on the same time last year.

David Newnes, of LSL, said: “Rents have risen consecutively for half a year as tenant demand strengthens on the back of a historically subdued mortgage market.”

Picking up on the difficulty facing first time buyers, Newnes commented: “However, every pound monthly rents go up by is another pound that renters cannot save for a deposit for their first home. This is lengthening their stay in rented accommodation, and increasing competition in the private rented sector.”

UK mortgages market has a sluggish September

New figures have shown that the UK mortgage market had a sluggish September with subdued demand for both new mortgages and remortgages alike.

The figures from the Council of Mortgage Lenders (CML) show that gross lending was £11.6 billion, down by 10% on August and down 15% on the same time last year.

The remortgage market looks particularly subdued. This time last year many people were concerned that interest rates were set to rise, and therefore took the opportunity to remortgage onto a fixed rate, where their payments are guaranteed not to change. However, a year later and there seems to be no sign of an interest rate rise, meaning that borrowers are preferring to stick with the variable rate deals they are currently on, resulting in a lower demand for remortgages.

Bob Pannell, Chief Economist at the CML, said: “House purchase demand failed to lift significantly in the third quarter, despite much better mortgage availability.

Remortgage activity continued to languish, in contrast to relatively strong levels a year ago.”

The news came in the same week that the Bank of England said the Funding for Lending Scheme was helping to improve choice for mortgage borrowers, but that there was less demand for mortgages as would-be borrowers continue to be concerned about the general economic outlook.

Our mortgage adviser, Linda Wood, is here to help you. If you would like advice on your options call  Linda today on 0115 933 8433, alternatively enquire online or email linda.wood@investmentsense.co.uk

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