Is it time for first-time buyers to get on the property ladder?

While many UK homeowners may be struggling to sell their property, there is one group who will have welcomed the decline in house prices as they look to get their foot on the property ladder: first-time buyers.

The latest figures released by the Halifax indicate price falls of 15% over the past year, which could mean that house prices are now working in the favour of first-time buyers – some of whom have managed to get on the property ladder.

With house prices falling, the main factor affecting first-time buyers is raising sufficient funds since mortgage providers have reduced the amount they are lending, while the deposit buyers have to put down has increased.

Many lenders are requesting a deposit of at least 10%, with the most favourable rates being reserved for buyers who can pay larger deposits. However, a few mortgage products are still available for a deposit of 5%, including the Bristol and West First Start deal which, for an arrangement fee of £495, offers a two year fixed rate of 6.45%.

Getting a cheap rate with a small deposit can also be easier if a family member can underwrite the mortgage. Buying with friends is another alternative.

Ray Boulger, spokesman for John Charcol mortgage brokers, thinks that property prices will continue to drop until mid-2009.

"But right now is the time to start looking because it takes months to understand the market - and you might always find a distressed seller willing to take an offer," he explains.

He also predicts that mortgage rates will continue to fall and recommends that buyers who do not have a high deposit and subsequently find themselves being offered fixed-rate deals, would probably be best to opt for a short, fixed term agreement of around two years.

Martin Gahbauer, senior economist with Nationwide Building Society, believes that there are some attractive buying opportunities currently available in the market.

"It's sensible to look around now because there is a willingness by sellers to accept lower offers. But we can expect house prices to keep falling before slowing down in the later part of next year - and I expect interest rates to fall another percentage point in the first few months of 2009," he says.

Another alternative available to first-time buyers is taking up a shared ownership scheme, whereby the buyer purchases part of their property and pays rent on the rest, often at a subsidised rate. The buyer can then purchase more of their home if/when they can afford to do so.

When it comes to selling the property, the buyer keeps the appropriate share of the sales price. However, under certain schemes, the buyer is guaranteed to receive the same amount as they put into the property, so if the value of the property goes down, the buyer does not lose out in this case.

Finding a bargain at auction is another possibility for first-time buyers. Over recent years, many flats were built, particularly for buy-to-let investors. However, an oversupply has meant that the flats have been repossessed as the investors have struggled to find tenants. These properties can go under the hammer for as much as half the original purchase price.

However, first-time buyers looking to purchase at auction must remember that they will need to have the finances in place straight away. A 10% deposit is normally payable at the auction and the remaining amount within 28 days. It is advisable to visit several auctions before actively bidding; while the key rule is to set a maximum price and stick to it.

Source: Daily Mail | Last updated: 14th December 2008

View property news archive »