Are First-Time Buyers Finally Returning?

House Payments Fall, but are Lending Criteria Finally Easing?

May 14, 2009

Falling house payments mean that first time buyers are starting to return. Buying a house may be cheaper than renting a house, but lending criteria remain tight.

Falling house prices and monthly house payments have meant that buying a house is actually cheaper than renting a house. According to the The Council of Mortgage Lenders (CML), first-time buyers are finally starting to return. The main stumbling blocks appear to be tighter lending criteria and higher house deposits to counter the continuing threat of negative equity.

Are the Number of First-Time Buyers Increasing?

The CML produced figures showing that 40 per cent of those buying a house were first-time buyers. This is the highest percentage since April 2005. However, at 12,500 (up from 9,200 in February 2009) this figure is dramatically less than the 17,800 achieved just 12 months earlier.

Falling House Payments

Given that the Bank of England has set base rates at a their lowest level since 1694, house payments have become more affordable for first-time buyers. New homeowners spent just 13 per cent of their total income on their mortgage. This is the lowest figure since April 2004 and is considerably more affordable than highs of 18.9 per cent reached in November and December 2007.

Lower House Prices Help First Time Buyers

According to the Halifax (the UK's largest mortgage lender), the average cost of buying a house has fallen from £199,612 in August 2007 to just £154,716 today. This represents a fall of 22.5 per cent from their high. Lower interest rates and falling house prices have meant that house payments are vastly more affordable for those who have a sufficient house deposit and meet stringent lending criteria.

Higher House Deposits

With 100 per cent mortgages a thing of the past, getting a foot on the property ladder is now more difficult. The majority of first-time buyers are increasingly dependent on parental offers in order to comply with the new tighter lending criteria.

Bob Pannell, head of research at the CML, spoke of the "sharp dividing line" between those who can raise a house deposit and those that can't. He stated: "For those who can, the burden of debt payments is low and mortgage interest is consuming proportionately less income than for a number of years. But for those without significant deposits, entering the market is still both difficult and uncertain".

Buying a house has become cheaper than renting a house. Lower house payments have enticed many first-time buyers back into the market, but house prices may not yet have bottomed out. Stricter lending criteria and a higher house deposit requirement means that getting a foot on the property ladder remains extremely difficult.

Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.

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