A key to buying property in an "unstable" market?

Daily breaking news have painted a drastic picture of the increasing difficulties for first-time buyers to get on the property ladder. The current housing market has left wannabe-homeowners puzzled as to when to make a smart move. By Arlette Maloba

So You Want to Get on the Property Ladder? “Time the buy right and you will do well, get it wrong and you stand to see your hard earned savings disappearing,” says property expert. SIXTY per cent of Britain’s economic wealth is now tied up in the property market, according to the Council of Mortgage Lenders. That explains why, just as the credit crunch started to affect the UK housing market in mid April, the Bank of England cut interest rates further by a quarter of one per cent to 5 per cent. As daily news reveals fluctuating charts of the UK housing market, first-time buyers remain challenged and uncertain to make the right decision. Figures from the Office of National Statistics show that the average house price has rocketed from £68,777 in 1997 to nearly £200,000 in 2008. Peter Hawthorne, 38, a financial adviser at Barclays Bank in central London, says: “I believe that it is harder than ever for first time buyer to get on the property ladder. The housing market is unstable at present. “The loss of confidence in the US housing market has spilled over to the UK, and when combined with the credit crisis we have the right conditions for a slowdown.” While it is increasingly becoming more difficult for first-time buyers to afford a mortgage, some are turning to alternative ways such as buying with a friend, seeking financial help from parents, or opting for government schemes such as shared ownership. Eluned Davies, 29, a mortgage adviser at Cheltenham & Gloucester (C&G), part of Lloyds TSB in Kingston, says: “There are lots of things people who can’t afford a mortgage can do these days. You can buy with a friend or partner. You don’t have to be a key worker when buying a property on a shared ownership scheme. For instance, you can own 50 per cent of the house and the government owns the other 50 per cent, this way people on a low income can get on the property ladder.” Ms Davies says although C&G can lend up to four times a borrower’s salary, one of the minimum requirements to get a mortgage with them is to have a 10 per cent deposit. “The lending we do is based on credit scores. A person with a bad credit history can easily be turned down,” she says. Lenders are stricter than ever because of fear of the number of repossessions. The Council of Mortgage Lenders predicted that up to 45,000 houses will be repossessed in 2008, a 50 per cent increase from last year. Marcus Grimmer, 32, an investment banker at Morgan Stanley, says: “Banks don’t want to repossess a property. It’s absolutely expensive. It involves further legal procedures, and when you add up all the cost the value of the property is lost.” Mr Grimmer, who has worked in banking for over ten years, says that although the 5 per cent deal is disappearing from the market, there are still lenders who would take such deposit on a £200,000-property. “Saving for a deposit can be daunting. …I firmly believe that anyone can buy a property if they’re prepared to make the sacrifices. As they say ‘short-term pain for long-term gain’, rather than buying the latest car or going on holiday, save to buy a home,” he says. For many, owning a property brings a sense of security and freedom. Annie Jennings, 22, a third-year Kingston University journalism student and her partner Gary McKenna, 23, a mortgage underwriter in Caterham, Surrey, have just bought their first home. Neither had lived away from their parents before, so moving into a one-bedroom purpose built flat in Tunbridge Wells, Kent, has brought new excitement to the young couple’s life. “I’m really happy that we bought at a good time,” says Ms Jennings. “It’s nice to know that we can do whatever we like with everything because we own it. We can take doors off, change the locks, make holes in the walls etc. – all the things you cannot do when you are renting. We’re really glad that we’ve made it on the property ladder at our age. “Gary and I have been together since December 2004 and last year we thought it was about time we moved out. …We decided not to rent because to us, renting is literally throwing away your money,” says Ms Jennings. “Our only problem was not having the deposit. As soon as my dad lent it to us, we started looking seriously.” The young owners admit that during their search they had been turned down by various lenders because they only had a 5 per cent deposit. After all the heartaches in the process, Nationwide, the UK’s second largest mortgage lender, gave them a two-year fixed rate mortgage at 6.12 per cent. Ms Jennings and Mr McKenna put down a 5 per cent deposit of £5,900. Thanks to the ‘credit crisis’ effects on the housing market, the seller reduced the price of the flat from £130,000 to £118,000. “It annoys me because items in the news make it seem like young people are never going to own a property. I know when I told my friends they were shocked that I could afford it. But if you actually sit down and work out what it costs, it’s really doable.” Could this be the most profitable time for first-time buyers to get a mortgage? Ms Davies says: “It is hard to say whether or not it’s a good time to get on the property ladder.” Carl Astorri, who is head of investment strategy at RBS Wealth Management, says: “I would personally say that this is not the right time to buy a property because house prices are expected to continue to fall down further.” However, Mr Hawthorne says: “Time the buy right and you will do well, get it wrong and you stand to see your hard earned savings disappearing. “In the short term renting may well be a very good option. In the present climate you may well be better off waiting for house prices to fall. The difficulty is deciding when the bottom has been reached,” says the financial adviser. “In the long term property ownership creates wealth and financial security.” Property Tips: How to do it Right ü Make sure you can afford a mortgage before approaching the lender. ü If you are only able to a get a mortgage with a sub-prime lender, you can’t really afford it. ü If you don’t have enough money for a deposit, the sooner you start saving the better. ü Look after your credit record as it determines whether or not you get a good rate from the lenders. ü Study the market and buy at the right time. ü Examine your expenses and keep your cost low. Be creative. ü Avoid getting a personal loan as rates are very high. ü Seek advice from mortgage brokers. ü For cheaper properties, extend your search outside the London area. ü Be prepared to pay additional fees such as a stamp duty, legal cost and survey services.