We the mortgage situation was bad, especially for first time buyers, but we didn’t know quite how bad. There is an increasing gap between those who have a property (and property insurance)and those who haven’t and are aspiring. Getting a mortgage 5 years ago was easy. Now, not so, and not only do you need to prove you have a steady income, but you also need a hefty deposit to secure anything (decent or not), especially in London. The number of new mortgages sold has dropped by 50% since 2007.
For those who have a good income and a house which hasn’t plummeted in value, there are a good portion of cheap mortgages available. For the young, first time buyers but also ‘second-steppers’, the situation is pretty bleak. Before, when you could purchase interest only mortgages with a modest income, the 2008 crisis has changed all that. The sale of mortgages pre-2008 to impoverished Americans who simply couldn’t afford them prompted the original crisis, thus explaining the regulations imposed by the banks today.
Tough luck for first time buyers
The problem is however, that banks have capitalized on this, meaning that first time buyers are very hard hit. Banks prefer to lend to those regarded as ‘low-risk’ and with a high credit rating. To be regarded as low-risk you have to have a 25% or ideally, 40% lump sum. Having a small deposit will mean that your interest rate is very high (around 6-7%) so you’ll effectively be throwing your money away with every paycheque you receive. On top of this, you need to have a good credit rating – having no credit rating is just as bad as having a terrible one. Those who have invested a large deposit will typically see their interest rates placed much lower (around 3-4%).
First time buyers aren’t the only ones affected. Those who are stepping from their first property up to their second are suffering due to the housing prices plummeting post crisis. Those who initially put down a deposit for their house and seen its value decrease have effectively had their deposits erased. Second-steppers are also finding it very difficult to sell, as there are few first time buyers to sell property to. In London, the situation has been exacerbated by foreign investors who are often buying up properties without mortgages, thus elevating prices. Indeed London has been described as having a population of renters.
There may be a little light at the end of the tunnel though as the Bank of England is prompting banks to lend more by releasing billions into a lending fund. 2013 may therefore be a slightly better year for first time buyers, but we are unlikely to get it as good as we did in the early 2000’s.