More Property Price Pain For First-Time Buyers

[dogsmum]

 What's going on with house prices?

Here's a quick update on the latest house price indices.

Nationwide reported a 0.5% dip in house prices this month, bringing the annual rate of house price growth down from 4.2% to 2.7%. That means prices fell by an average of £38.45 a day in February, pulling the average price of a property in the UK down from £180,473 to £179,358.

No! says property website Rightmove.co.uk. This site, which advertises property for more than 90% of Britain's estate agents, claims there was a 3.2% jump in asking prices in February and a 5.8% increase over the past year - and that average property asking price is more than £7,000 higher than last month, at £237,836.

But remember, that's the asking price. Perhaps sellers' expectations are still out of kilter with the slowing market?

Not according to the Land Registry, the government body which lists the actual prices paid for property in the UK. It hasn't yet published its February figures, but announced earlier this month that prices rose by 0.9% in January.

Then again, Halifax reported prices remained completely static in January, and the Royal Institution of Chartered Surveyors said that 35% more surveyors reported a fall than a rise in house prices.

So who's right and who's wrong? As I explained in The Truth About House Prices, part of the reason all these indices report different figures is because they collect their data at different stages in the homebuying process. Each one takes a snapshot from a certain angle - to get a sense of what's really going on, you need to look at the bigger picture of what's going on in the wider economy as well.

Of course, finding out what happened last month isn't that useful. The real question is: what's going to happen next month?
The Impact Of Mortgage Lenders

If you listened to our recent podcast on house price predictions for 2008 and beyond, you'll know that Dr David Kuo and I had a bit of an argument about the outlook for house prices this year.

David predicted that house prices will fall by a whopping 20% this year, and I disagreed (listen to the  podcast to find out why!). But now I am starting to feel seriously worried - although I still don't think there's going to be a crash.

In the past, if house prices started to fall significantly, there was a good chance that pent-up demand from first-time buyers (who at last would be able to afford to buy) might kick in and help to keep them stable.

However, recent changes in mortgage lending criteria means this ‘get out of jail free' card from first-time buyers is crumbling as we speak.

For years, lenders have been increasing the sums they are willing to lend to buyers desperate to get on the housing ladder, pushing the boat out with 125% mortgage deals and the like. This made it relatively easy for borrowers with little or no deposits to buy their first home. And that in turn, helped to ensure demand from first-time buyers remained strong in a market when prices have tripled to more than seven times the average income, in just a decade.

This month, those very same mortgage lenders who were falling over themselves to tempt borrowers to ‘buy now, worry later' have now withdrawn 125% mortgages.

Many have also tightened their criteria, so that there are very few competitive deals now on offer to borrowers with less than a 10% deposit, never mind no deposit whatsoever.
First-time Buyers Are The Foundations

How does all this affect house prices? After all, the vast majority of existing homeowners have built up more than 10% of equity in their homes and therefore their plans to buy and sell property will not be dramatically affected by these changes - or will it?

It is true that it is mainly first-time buyers who are affected by these changes in mortgage-lending criteria, as these borrowers are the least likely to have large deposits.

But these changes are also bad news for everyone else, because first-time buyers are the foundations of the housing market - the bottom link in most property chains.

If fewer first-time buyers qualify for a mortgage at a rate they can afford, demand could start to ease off at the bottom of the market. And eventually that will feed right through the chain to the top.

Of course, if prices do fall significantly, first-time buyers could find they have enough savings for a 10% deposit, after all. In the meantime, however, they will have to scrape together nearly £20,000 (including Stamp Duty), to get a competitive mortgage rate on the average home.

And that means I fear there are some tough times ahead in the property market. It seems first-time buyers, as usual, have drawn the short end of the straw.

But I hate to end on a gloomy note. And on the plus side, it is a buyer's market right now, and first-time buyers are in a strong position because they're chain-free. So if you're a first-time buyer, my advice to you is: don't despair. Instead, save hard and negotiate hard. And don't forget to use our award-winning mortgage service to ensure you get the very best mortgage deal on offer in the market.

[Lisa]

i don't think we'll ever buy.. it's slipping further and further away

[Taf]

House ownership is overated anyway....

More social housing please Brown!!!!

[Lisa]

buying is our only way out...
we've been on the housing list for 5 years now, and only seen 1 house which was way to small....

[Taf]

I think we were on the housing list for 11 or 12 years... you just have to wait for someone to die.... and now that mortgages are so hard to get, there will less of "Let's get Granny to start buying her council house before she pops her clogs...."

[sabell]

Sellers are out of touch with prices. They are not accounting for price drop. I have seen sellers have to lower their asking price by £20,000 in 5 months but they are still asking too much.

I do feel your frustration Lisa, getting council accomodation when one of you is working is a problem, you are just not seen as priority. I had no chance because I worked and no one cares/takes into account that working doesnt mean you are able to afford a mortgage.
I would have loved council property, low rent, home improvements sorted by someone else, sizeable house/flat etc but it was not to be, because I work.

I have very good knowledge and experience of social housing, because of my job, and I know that it is unfair and alot of people (not all) are taking advantage eg 'faking' situations and so called health issues.

It is a subject that winds me up massively

Rant over 

[Lisa]

paul wasn't in work when we first went on the list, but i have no doubt that we'd have had more offers if that was still the case.
Not only that, when you take a council/housing association house they expect you to move in with in a week or 2 weeks max. Most private landlords expect 4 weeks plus notice... so you'd have to rent 2 houses at once.
If you aren't in work the council will cover the rent for both places at the same time. But if you are in work you have to go fish.
I did point this out to the housing people, their reponse? a shoulder shrug and a "we won't leave a house empty for that long" I believe that is why we were only shown the one house... we're kind of accidently on purpose forgotten about.

[sabell]

It is crap 

[Lisa]

been pondering buying a caravan and dossing in someones drive way

[dogsmum]

 

Most private landlords expect 4 weeks plus notice... so you'd have to rent 2 houses at once.

 Thats what we had when we moved from Fairford then again when we moved here

 

been pondering buying a caravan and dossing in someones drive way

 We got a driveway!!

[Spite]

been pondering buying a caravan and dossing in someones drive way

  Taking your cultural heritage more seriously, then? 

[Lisa]

well someone has too