With house prices falling all over the country, maybe now would be a good time to make a move onto the property ladder. In reality, the credit crunch has priced some first time buyers out of the market, unable to secure a mortgage or afford the high rates that are being offered. Yet, if funds can be secured then it is a buyers market, with many vendors having to accept offers far below their asking price.
Most mortgage lenders have tightened up their lending criteria. Last year it was possible to opt for mortgages covering 100% or even 125% of the property value. Most lenders have now pulled their no-deposit products and buyers are having to save at least 10% to get a mortgage. According to Nationwide, the average price for a typical first-time buyer home is 156,636 pounds. So that would involve buyers saving over 15,000 pounds for a deposit. With stamp duty and fees this figure could rise to near 20,000 pounds.
The main reason that these products were pulled was the fear of negative equity. This is where the property is worth less than when you bought it. This would be a major problem if you were to sell the property, as it is possible that you wouldn't make enough money to pay off the mortgage.
Although the housing market has significantly cooled, there is still activity. If you can secure a mortgage and afford the repayments then it's fine to make the leap onto the property ladder. This is why many buyers are opting for an interest only mortgage. An interest only mortgage keeps the monthly repayments low as you are only paying the interest on your mortgage. It is important to have a grip of your finances as you are not making any repayment on the capital you have borrowed.
Although an interest only mortgage could increase the risk of negative equity, if it is partnered with a flexible payment plan then it allows lower repayments allowing you to ride out the credit crunch. The only problem would be if you were unable to make the minimum (interest) payments. As long as these remain manageable and you are able to stay in the property until the market is revived then purchasing now is not a risk.
There are other options available to get onto the property ladder. One of these options is to join forces with another first-time buyer. By 'clubbing together' you are able to significantly increase your buying power. This doesn't have to involve sharing living space. For example, many first-time buyers are helped out with their deposit or mortgage payments by their parents in return for part-ownership of the property.
A variation of this is the guarantor mortgage. This is where instead of taking part-ownership of the property, the guarantor's income is taken into consideration and they are liable for the mortgage payments. Some lenders will offer the option of the guarantor being able to support a percentage of the loan, as long as the buyer shows that they can afford the remaining percentage.
Once you have secured the funds it is essential that you select the correct property. It is essential to market the fact that you're a commitment free first-time buyer! As house prices are falling, many sellers are having to negotiate their asking prices. If the property has been on the market for a while then it is a prime opportunity to haggle over the price.
There are some things that you should take into consideration to ensure your property holds its value. The main factors that i would recommend considering are the location, property type and state of the property.
It is essential that you thoroughly consider where the property is located. Seaside locations, market towns, commuter towns and attractive suburbs are always popular. Other criteria, such as where the property is in relation to reputable schools and local amenities are always important to ensure your property keeps its value.
The type property will also have an effect on your investment. Flats are available for less money, yet their price usually does not grow as much compared with houses. Another reason to opt for a house is that the market is currently flooded with new-build apartments.
Properties with distinguishing features are also highly sought after. The state of the property is definately worth considering in the current climate. A property in good condition can be seen as a better investment compared to a property that needs work. This is because although modernising has been popular recently, these projects are still expensive to purchase, making the potential for profit questionable.
In summary, if you find the right property in the correct location then it's a good time to buy, as long as you are looking to stay in the property and can afford the mortgage repayments. If these payments are manageable then it is possible to remain in the property until the credit crunch blows over. There are many ways that you can ensure the payments are manageable, possibly 'clubbing together' with other first-time buyers or using a guarantor.
