First-time buyers have for years faced an uphill struggle to get on the property ladder, but falling house prices have presented a potential window of opportunity. The difficult question to answer is, when is it the right time to purchase a home for a first-time buyer? What are the risks facing first-time buyers?
Falling Property Prices and Negative Equity
John Varley, Chief Executive of Barclays Bank, believes that house prices will fall by 30% from their early 2008 highs. This has already left a number of first-time buyers that took advantage of 95% mortgages struggling with negative equity. Their 5% house deposits were eroded in a matter of months.
Whilst negative equity is only a problem when a first-time buyer wishes to sell their home, it is an issue if someone must move because of financial difficulties. If made involuntarily redundant, how does a first-time buyer maintain their mortgage payments? Government assistance is far more limited for home owners than it is for tenants.
Involuntary Unemployment
David Kern, chief economic adviser for the British Chamber of Commerce said that "The labour market figures were dire and confirm the economy is now facing a severe recession. Unemployment is up, employment is down and job vacancies have fallen further."
Many economists are predicting that involuntary unemployment is set to rise to over 3 million over the next couple of years. This can only serve to create further negative equity and fuel property repossession as people struggle to keep pace with mortgage repayments.
First-Time Buyers and Property Repossession
The Council of Mortgage Lenders stated that 27,100 homes, the highest figure since 1999, were taken over by lenders after people fell behind with repayments. Property repossession figures are set to continue to climb given the escalating involuntary unemployment figures and resultant financial difficulties being experienced by first-time buyers.
If a first-time buyer is experiencing financial difficulties, is unable to keep up with mortgage repayments and is unable to sell up, this increases the possibility of property repossession. This will result in a house being sold at auction at well below market price. To make matters worse, creditors can pursue a first-time buyer for any debts arising from the negative equity for up to 12 years.
The market is extremely perilous for first-time buyers. However, the current low interest rates do make buying a house an attractive proposition. If deciding to buy, save a minimum of a 20% house deposit and seriously consider taking out unemployment insurance.
 |
 |
 |
 |
 |
