30 Nov

First-time buyers to be given a lifeline

First-time buyers to be given a lifeline

With the government announcing at the beginning of this week that it plans to install a new system and provide funding which will help first-time buyers get onto the property ladder, large scale changes could be on the cards for both the rental and purchasing market across the country.

Earlier this month, the Confederation of British Industries (CBI) called for the government to adopt a two pronged approach to ensuring that the housing market could improve. Its short term option was to introduce a mortgage indemnity guarantee, which would allow first-time buyers specifically to use their savings to take out mortgages with low deposits.

John Cridland, CBI director general, said: "While we would not want to see a return to overly-risky lending practices and unsustainable personal debt levels, it is important that we get credit flowing to those who need it most."

On Tuesday 29th November, chancellor George Osborne gave his autumn statement, in which he announced that mortgage indemnity guarantees would be vital in increasing the housing stock, after announcing last week that they would indeed be introduced.

Paul Smee, Council of Mortgage Lenders' general director, said: "It will however allow credit-worthy borrowers to obtain higher loan to value mortgages on new build properties without requiring the level of deposit which has become usual in recent years."

Under the mortgage indemnity scheme, the government said that it can use the low interest rates it had secured in order to help young families who wanted to buy, but were far from being able to afford the high level of deposit that banks require. It said that young couples will be able to secure a mortgage worth 95 per cent of the value of their homes.

The scheme will be run specifically for first-time buyers on new build homes, with the government estimating that it will be able to work with those looking to make their first step onto the property ladder in order to provide 100,000 new homes across the UK, making a dent in the shortage of homes available.

This will be welcome news to those who have been battling to secure a deposit for their first mortgage, as it was recently reported that many first time buyers were turning to new ways to raise one. Santander reported earlier this month that 27 per cent of first-time buyers were prepared to take on a stressful second job to fund their home buying, whilst 28 per cent have said that they would be happy to take on a personal loan, a worrying statistic given that they would have to pay back their mortgage as well as the loan.

Phil Cliff, director of Santander mortgages, said: "The housing market is a tough place, particularly for first time buyers and with property prices averaging over £200,000 it's no wonder people are becoming increasingly resourceful when it comes to raising [a] deposit."

The amount of people who move towards buying as a consequence of this introduction could also free up many private rental homes for people looking for property to rent in London, reducing the cost of rent for many as the demand will potentially see a drop. LSL Property Services' latest figures showed that the demand for properties to rent had seen prices increase for nine consecutive months up until October, now sitting at £720 per month on average.

Ian Potter, operations manager at the Association of Residential Letting Agents (Arla) recently said that demand was the main driver of price in the private rental property market.
"In certain parts of London, people are actually getting into bidding wars for a property," he said, adding that a lack of confidence to buy meant that more people were currently looking to rent as opposed to purchasing their own property.

However, with the introduction of the mortgage indemnity scheme from the government, which comes into effect in the spring, many people may then have the confidence to move into purchasing their own property, in what housing manager Grant Shapps last week called a sensible way to move the market forward.ADNFCR-1222-ID-801226177-ADNFCR

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