Are First Time Buyers poised to kick start the housing market?

The implosion of the mortgage market in the UK following the worldwide economic downturn after the collapse of Lehman Brothers in 2008 has meant that potential first time buyers have not been able to buy their first property due to the high deposit levels demanded by the lenders.


The lenders were as uncertain of the future economic trends as the rest of us so increased the deposit levels required to safeguard their own equity in a mortgaged property to ensure they’d get their money back if everything went wrong.

However, we now seem to have reached a plateau, or more accurately a plain, where everyone accepts that the economy will be flat for the next year or so, but is unlikely to collapse, and the slow growth will commence thereafter. Sir Mervyn King, Governor of the Bank of England has predicted this scenario in his recently released quarterly bulletin.

The lenders appear to have gained comfort from this and are now offering mortgages with much lower deposit levels, particularly to first time buyers. For example Lloyds TSB now have a product at 95% Loan to Value, at an interest rate of 3.94%, fixed until January 2015, with an arrangement fee of £1,094.00. (source: moneysupermarket.com)

On a property valued at, say, £150,000.00 the repayments on an interest only basis on the above mortgage would be £468.00 per month.

Most first time buyers who are renting because they can’t afford to buy are paying more than this for a rental property anyway and so they now have a motive to purchase instead. They have also been saying that they could afford the mortgage payments each month but few had saved the £60,000.00 (40% of £150,000.00) for the deposit being asked for by the lenders until just recently.

If the bottom end of the property market starts moving again then prices will start to rise again slightly and it will create a natural market stimulation upwards into the housing market as well.
If this is the case, then rents may adjust back down slightly in the smaller property sector of the rental market but the offset for landlords would be a return to some capital growth once again, albeit slowly for the next couple of years yet.