Lack of first time buyers severely affecting rest of housing market
July 6, 2008
The housing and mortgage markets have both been experiencing immense difficulties over recent months, with the onset of the global credit crunch last summer having a profound adverse effect in the money markets, and this having a knock on effect in the housing sector. Mortgages have all but dried up, with many consumers unable to get finance to purchase a property due to tighter credit conditions stemming from lenders finding it increasingly difficult to get finance to fund their mortgage lending operations.
House prices have been falling over recent months, and this would normally have been great news for first time buyers who have been keenly waiting in the wings for years, in the hope that property would become more affordable after a ten year house price boom. However, this is not the case, as many of those first time buyers are now scared that if they take the plunge house prices will continue to fall and they will be left in negative equity. Others simply cannot get a mortgage to purchase a property.
A number of other changes have taken place in the mortgage lending industry lately. Lenders are demanding higher deposit levels from borrowers, and 100% mortgages have been wiped out, all of which has impacted on the ability of first time buyers to get a mortgage. Interest rates have been hiked up for new borrowers and arrangement fees have reached ridiculous levels on some mortgage, which has further impacted on the ability of first time buyers to get a mortgage.
It is therefore little wonder that in less than ten years the number of first time buyers entering the market has halved, falling from over 600,000 in 1999 to just under 360,000 last year, which was its lowest level since 1991. With all of these hurdles in place for first time buyers figures could continue to fall, and this is impacting on the rest of the housing market. Those already in starter homes are finding it very difficult to sell their properties to fresh first time buyers and move on to a larger property, and this is something that is affecting homeowners all the way up the chain.
An official from the Council of Mortgage Lenders has said that the problem lies in the inability of lenders to supply mortgages at the moment, stating: “We don’t see this as a demand-led reduction but a funding problem. At the moment it’s still seen as very much a supply-side problem.”
However, some lenders say that they are not to blame, with one Nationwide official stating: “Affordability was beginning to bite before we had the trigger of the credit crunch. In the short term, the demand factors will dominate. People are not in a position to buy and that’s likely to be the case for some time.”
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