Everything Finance

In the UK, investing in property has gone through a huge boom in recent years. Such a pattern has been mirrored in developed countries across Europe and further afield, but things seem to be running out of steam. Towards the end of last year almost all of the countries in Europe suffered sharp drops in house price inflation, and concerns that the slump in the American housing market could be mirrored on this side of the Atlantic have been echoing around.

But could we really see a significant dip in average house prices, matched with a widespread bout of repossessions? A recent survey by the Royal Institute of Chartered Surveyors showed UK surveyors are at their most negative on house prices and agreed sales since May 2005 and April 1999 respectively. Meanwhile, in December and January, figures from the Council of Mortgage Lenders stated that the number of home buyers dipped to a nine year low. Such figures suggest that not only are people being priced out of the market, but that banks are also keen to reign in their lending practices after suffering from losses tied to the US subprime market.

One particular problem for the UK market now is a steep fall off in the amount of first time buyers. Not since 1980 has there been so few first time buyers entering the market, with an estimate of 300,000 making it onto the ladder last year. If you consider that average house prices have far outstripped GDP rises since 1995, and now stand at some eight times over the UK’s average wage, then it seems almost obvious as to how this problem emerged.

Despite the huge price rises, many first time buyers have still been eager to get on the first rung of the property ladder. Many have achieved this with a minimal deposit, often after negotiating 100% mortgages, or even more, from a bank. However, in the wake of the credit crunch many banks have been keen to review their lending practices, and a more cautious approach is becoming widespread. The number of mortgages approved for home buying fell for seven consecutive months up to December 2007. To exacerbate the problem, lenders steadily withdrew 125% mortgages, an attractive product for first time buyers, from the market. The last lender offering a 125% mortgage pulled their product in February.

Another report, this time from the Halifax, has also said that the average stamp duty bill for first time buyers has almost doubled over the last five years. Martin Ellis, chief economist at the Halifax said, ‘Stamp duty has again become an issue for first time buyers because the stamp duty thresholds have not kept pace with house price inflation.’ The bank has also pointed out that first time buyers cannot afford to buy a house in 92% of UK towns. For young people in this market, it looks as if renting may be the only way forward.

If you’re a first time buyer looking to get into the market, the Fish4 can provide you with a useful property directory. Also, if your thinking about how much you can afford, take a look at Alliance and Leicester’s useful onsite mortgage calculator tool.