First-time buyers to become an endangered species

First time buyers are deserting the housing market at a faster rate than anytime in the previous three years whilst the numbers of unsold properties is continuing to rise, according to a recent report produced by the Royal Institute of Chartered Surveyors.

Despite headline house prices rising for the 21st consecutive month there is clear evidence of weakening demand in the property market. The combination of a continuing house price boom and the general state of the UK economy has led many analysts to predict that the headline interest rate will hit 6% by the end of the year, and it is that impending threat that is putting off potential first time buyers. The RICS report has highlighted that these fears have prompted the lowest number of inquiries from first time buyers since August 2004.

Evidence of falling house prices in the US due to the collapse of the sub-prime mortgage market, has also made first time buyers extremely cautious, as they are wary of taking out mortgages and buying at the top of the market, under the threat of further interest rate rises. RICS spokesman Jeremy Leaf said: “The combination of slowing demand and supply is causing a further weakening of housing market conditions. Interest rates are perched at 5.75% and the strong possibility of a jump to 6% has led to aspiring first time buyers waiting until the market trend becomes clearer before deserting rented accommodation.”

Figures produced by the Association of British Bankers show that almost nine out of ten UK mortgages granted during July were remortgages - highlighting the fact that record mortgage lending for the month was driven by existing homeowners seeking better deals following the interest rate rises. Under such conditions and with the average UK house price now reaching in excess of £214,000 many potential first time buyers are understandably wary about taking out substantial borrowing. Even if they do their homework and compare mortgages to get the best deal, the amount of monthly outlay for first time buyers would still represent a significant amount of their household budget.

Indeed the situation is so desperate for potential first time buyers that nine in ten would sacrifice a future portion of equity if it meant they could get on the ladder now, according to recent research produced by the website First Rung Now. This desperation has led to a number of lenders offering a ‘shared appreciation’ mortgage where, as an alternative to a deposit the borrower exchanges a proportion of the future equity. With almost one in five potential first time buyers having no deposit this scheme is proving popular.

But, even despite this type of help offered to first time buyers to get them on the property ladder it appears that the uncertainty surrounding house prices and interest rate increases is forcing many of thousands to abandon their plans of home ownership – at least for now.