First time buyers giving up hope

It's hardly surprising, but the National Association of Estate Agents recently posted the figures from a survey aimed at first time buyers which revealed that across the country, almost 7 in 10 people have given up hope of ever owning there own home. Quite a striking result, but I think 'ever' is a bit extreme.

I've also heard speculation that millions of Brits are looking for jobs abroad rather than sit and weather out the storm over here, but I don't know if there is any truth in that.

I think I'm doing the right thing in weathering out the storm here, and doing all I can do right now is build up a deposit for when things settle :) Judging from the contradictory news stories popping up all over the place at the moment, the housing market is extremely turbulent at the moment, and hopefully this will sink houses prices across the country!

House prices close to stabilising

Of course they're not!

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, has said that he expects house prices to stabilise from the middle of this year. He also stated that the widely expected 45% overall decline in prices is overly-pessimistic, and that it is more likely to be around 20%.

What an idiot. Thank god we're not in the early phases of a recession, and facing rising unemployment. Oh wait, we are. Reading through an online article written on the subject of the above statement, one reader had this to say: "And in the latest news, turkeys state that Christmas is definitely not coming this year. Sorry, Cancelled... just like the House Price Crash." Couldn't have put it better myself :) Simon Rubinsohns job depends on houses selling, this is obvious, so why do the newspapers print this tosh?!

Like many people I'm a first time buyer trying to get my own home to settle in, and these fat cats are squandering everything with there lies. Who am I supposed to believe, and where am I supposed to obtain REAL advice? All I can do for now is keep saving a deposit up so I can get a mortgage if a time comes when I can actually feel confident that the prices are at there lowest!

A quick update...

I've just been reading through various mortgage article, and caugh a snippet talking about how Lloyds TSB has launched a mortgage product which allows first time buyers to borrow an otherwise impossibly hard to come by 95% of a property's value... providing a friend or relative locks away a further 20% of the value in a savings account for 42 months.
This is forward thinking in difficult times, and I applaud them for that, but surely the returns on this 20% would be a hell of a lot higher for the friend/family member if they simply put it down as a deposit for them. Aren't they effectively saying that they expect house prices to continue to fall for 42 months? If it was me I'd use the 20% for the deposit, unless I am missing the point?

Time to start saving!

I’ve decided its time to start making a serious attempt to put more money aside each month for a deposit. I really need to get a more substantial amount together if I am ever going to get myself a mortgage! I don’t want to approach family members for help with a deposit, even though it has been offered, until I can prove to them and to myself that I am completely on top of my finances.

As a small family, living in what could be considered hard times, we are actually living quite comfortably at the moment. So, there are a few ways we could quickly increase the amount of ‘available cash’ left in our accounts each month. I’m in the processes of working this out properly, but some examples of ways we could save fairly considerable chunks include cutting our Sky+ HD subscription, our mobile phone contracts and me and my fiancés gym membership. This amounts to around £140 a month, or £1680 a year. Quite a chunk on top of what we could save anyway! I really need to get my head around whether these ‘luxury’ items are more important to me than having my own home… I don’t think they are.

Wish me luck!

Government fails to honour student loan promise

It was announced today that those who took their loans out from 1998-onwards will pay a 0% interest rate on their outstanding balances during the next academic year, whilst those who took out a loan pre-1998 will see interest rates reduced to a minus 0.4% rate.

The Government has always said that the student loan rate for each academic year will follow the previous March’s Retail Prices Index (RPI) inflation figures (or be cheaper). This March it stood at minus 0.4%, yet Westminster has now invoked invoked a law allowing a 0% interest rate to be set for 1998-onward loans! This represents a massive U-turn by the goverment, and breaks one of the founding principles set out in the contracts of around 2.35 million students.

The Student Loans Company has made the following statement (...and they seem to be forgetting that the 2.35 million people this affects are tax payers themselves):
"The decision (on 1998-onward loans) has been taken because loans are already well subsidised, and it would be difficult to justify to taxpayers a situation whereby students take out loans in 2009/10 and their balances are immediately reduced."

A petition has been set-up in order to give the goverment the chance to do the right thing before these changes take effect in September. Please sign it here: DecreaseLoans

Mortgage approvals up by almost 30%

It has just been reported by the Council of Mortgage Lenders that more than 30000 mortgages were approved for purchases in March. However, this news comes as buyers with small deposits are still very much facing an uphill struggle, with the hill being incredibly steep and made from loose sand!

The number of first time buyers taking out loans was up by 36%, and this accounts for the largest share of the market since April 2005 with 40% of approvals. Despite this, the absolute number of first-time buyers remains low and is well down on the 17800 who took out mortgages in March last year.

So, what does this mean for me? Well, given the falling interest rates and house prices the cost of repaying a mortgage would be at its lowest level since 2004, at around 15.1% of my monthly income needed to make the monthly payments, if I could raise a big enough deposit to get a Mortgage in the first place. Time to call in the big guns I think.... my rich uncles! Well, desperate times call for desperate measures... begging relatives for cash.

One thing I haven't mentioned is that I am currently renting a small house from my uncle, so I am essentially paying off his mortgage for him. On the one hand its nice keeping the money in the family, but on the other it's quite sickening!

I believe that if I can pull a big deposit together within the next 12-18 months, I'll be able to lock in on a fixed rate mortgage before everything starts going up again. Wish me luck.

Grey area

The housing market seems to be a very grey area at the moment. Conflicting articles have been popping up over the last few weeks, some saying prices are on the rise again and some saying prices are still on the decrease.

Those articles saying house prices are on the increase are surely being written as some hopeless attempt to pull the wool over our eyes, and can't actually be true. The only question on my mind right now is 'How much will they fall?'.

I saw a housing programme last night on BBC2, where a couple were looking to buy their first home, and the presenters managed to find 5 properties, all quite spacious with 3 bedrooms and a garden, and all in the region of £60'000. Quite sickening really, and I was waiting for the blurb to appear, which it did, that announced "House Prices correct as of Winter 2002". If only.

Luckily I am from a big family, so I probably will be able to scrape a deposit together in the next 12 months with which to get my first Mortgage. However, like the couple mentioned earlier I really need a 3 bedroom house with a garden, but unfortunately £100'000+ seems way outside my budget at this moment in time, yet that is the average price in my area...

A glimmer of hope? LTV’s start to rise…

Apparently, first time buyers who have been struggling to save up money for a deposit now have more mortgages to choose from thanks to lenders finally allowing their loan-to-values to creep up.

Abbey is currently offering a four year fixed rate mortgage at 5.84%, available up to 85% loan-to-value (LTV) - the amount that can be borrowed relative to the cost of the property - with a fee of £495. HSBC, meanwhile, has increased its LTV from 60% to 75% on its tracker mortgage of 2.95% (tracks 2.45% over base).
(Source: Guardian)

This can only be a good sign, but I now believe it is still not the time to buy. I'm going to be holding my horses, probably until 2010 at least, by which time I will have saved up a more substantial deposit and I am predicting that is when house prices will be at the bottom of the trough. Let's see how that pans out... :)

Mortgage approvals on the increase

A rise in mortgage approvals by the major banks for the third month in a row has brought some cheer to the housing market.

The British Bankers Association has just announced that there were over 28000 mortgages approved for house purchases in February, up from just over 24000 in January.

As mentioned in my previous post, mortgage repayments have become far cheaper for a lot of people with interest rates currently standing at 0.5%. However, Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors says "The increase in buyer enquiries is now feeding through into actual transactions, but even so, the actual level of activity still remains not that far away from historic lows and it would be premature to conclude that some semblance of order has returned to the housing market"

For the first time in my life, at 25, I have finally been able to save up a moderate amount of cash. Lets just say its enough to fill a Cash ISA. Typically a Recession then hits, and my hard earned money is just sat there dusting over. If I was able to put it towards a deposit for a house that would be great, but with the current state of the Mortgage market its not currently possibly.

Mortgage approvals might be on the increase, as was a headline in todays papers, but in reality they are still at an all time low!

Parents stepping in to help first time buyers

With the current climate, it is no surprise that more first time buyers are relying on the bank of mum & dad to try and get a foot on to the property ladder.

As a first time buyer myself, and as a young parent, I feel I will continue to be hit hard by the credit crunch. Lenders are demanding increasingly higher deposits, and at present nearly 1 in 4 mortgages requires a deposit of 40%, , and the mortgages available to me are now practically non-existent as there are no deposits below 15% of the total value!

So, despite the falling house prices and historically low interest rates I still can't buy without some assitance. I am currently renting in the North West, which is an area that offers the biggest savings to buyers over renters, with it costing around £80 a month less to buy a property than to rent a similar one, followed by Wales, where buyers could save around £70 a month by buying.

Nici Audhlam-Gardiner, Director of Abbey Mortgages, recently said: "The tide is turning in favour of first time buyers. With property prices falling and competitive mortgage offerings now available, those who have built a significant deposit will be able to reap the benefits across most of the country with lower monthly outgoings."

Confusing times...

Here is a statement that was made this week by David Smith from Dreweatt Neate estate agents:

"We firmly believe that now and the next six months are the trough for house prices"

I have a slight feeling however that this is wishful thinking, as around the same time HBOS group's housing economist Martin Ellis acknowledged that house prices were likely to continue falling in 2009. In a statement he added"While market activity remains at very low levels, there are some tentative signs that activity may be beginning to stabilise. The house price to earnings ratio - a key measure of housing affordability - has fallen to its lowest level for six years"

In summary, although mortgages are becoming cheaper following a string of interest rate cuts, (UK interest rates lowered to 0.5% today! Source: BBC), the demand for a high deposit and fears over job security are stumping the market despite this apparent 'affordability'.

This all builds on my previous thoughts that now is the perfect time to hop on the property ladder if you have a stable job and can knock together a big deposit.

My First Post: What is a Mortgage?

Writing this has helped me gain an basic understanding of what mortgages are, and hopefully as I gain more knowledge on the subject I can post updates which will go into more detail.

So, a mortgage is really just a loan, but with two special characteristics.
Firstly, it is designed to be paid back with interest over a long period, typically 25 years. Secondly, unlike a standard bank loan a mortgage is “secured”. In return for lending you the money, the bank will use the property as security for the mortgage, so if for some reason you can’t make the repayments, the lender has the right to reclaim your house and sell it to recoup the money you borrowed.

The way I understand it, there are a couple of choices that must be made which will enable you to more easily navigate your way through the thousands of mortgages available, and be left with the mortgage which is right for you.

Here is a brief breakdown of those choices, and hopefully as my understanding grows I’ll be able to provide a more detailed guide on each in later posts:

Choice 1: Interest only or Repayment?

At its most extreme, on an interest only mortgage, and after 25 years of monthly payments on a £100,000 loan, you would still owe £100,000. However, if you’d had a repayment mortgage, whilst it would have cost more each month, it would have cleared the interest and the loan, meaning you’d owe nothing at the end.

Choice 2: What type of Mortgage?

Standard Variable Rate (SVR)
This roughly follows the Bank of England interest (base) rate, but generally floats just above it. Whilst it can be considered the most easily understandable mortgage, it is certainly not the cheapest.

Tracker
A tracker follows the Bank of England base rate absolutely, so you benefit from all rate drops, but take the brunt of all rate rises aswell. Most usually offer a ‘collar’ of say 2.5%, which would protect you from huge increases but then also prevent large decreases.

Discount
Now things are getting more complicated. Whilst a discount mortgage sounds great, you’ll have to know both how big the discount is and what it’s off. Usually it is a fixed term discount off the SVR as above, so once the discount wears off you may be stuck on the more expensive SVR mortgages. You would need to work out whether the initial discount will outweigh the potential extra costs long term, and I can’t see how that would be a simple task.

Fixed
With a fixed mortgage, your repayments are guaranteed to be the same each month for as long as the deal lasts. This will usually be 3 to 5 years, although longer term deals are sometimes available. However, this is a service you will pay for, and you would often be better off on a Discount Mortgage as above.

Capped
Part Variable rate, part Fixed. The rate you pay tracks the base rate but there is a “cap” in place which offers protection from large rate increases. Just as a collar sets a minimum. Given that the Bank of England base rate has recently plummeted, this looks to be an attractive mortgage. However, the cap may be set fairly high, in which case if you were gambling on the interest rates suddenly rising again, the Fixed mortgage above would probably be the better option!

Cashback
This does exactly what it says on the tin, and whilst a lump sum payment of around 5% of your total loan would be nice, nothing in life is free. You’ll need to look at all aspects of this type of mortgage carefully to see where they are getting the money back. i.e. higher interest rates or hefty early repayment charges.