Deposit levels could shoot up further for would be buyers

Until the end of 2007 the UK, along with many other nations, had enjoyed around a decade of easy credit, and for many the sudden financial restrictions that came into play with the onset of the global credit crunch in 2007 came as a real shock.

Amongst those that were set to suffer as a result of these restrictions were first time buyers, who had been waiting for years for property prices to fall in many cases.

Over the past decade, up until the latter part of 2007, house prices in the UK had been booming, and with prices increasing by tens of thousands of pounds over that period many first time buyers found that they were priced out of the market, and some wondered whether they would ever be able to get their foot on the property ladder.

However, the goods news was that lenders were prepared to bend over backwards to lend people money to purchase a property, so first time buyers could enjoy high income multiples, long repayment period that were sometimes close to double the traditional twenty year term, and mortgages for or over the value of the property value, which meant that they did not need a deposit.

Many would be first time buyers may have rejoiced in the latter part of 2007, when it was announced that house prices had started to fall, and as the months went on house prices continued plunging, giving some first time buyers the hope that they would at last be able to afford to buy a property. However, many were not expecting the severe lending restrictions that would come about at the end of 2007 and would continue throughout 2008 and beyond.

Just as many began to think that their dream of homeownership was within reach the global credit crunch struck, and lenders were suddenly refusing to hand out mortgage loans to many people. Those with bad credit and first time buyers were amongst the worst affected, and even now getting an affordable mortgage is nigh on impossible for some. This is partly because over recent months many lenders have been demanding higher deposits, which most first time buyers cannot raise. The days of 100 percent and 125 percent mortgage have gone for good according to the Prime Minister Gordon Brown, and many buyers are therefore looking at a minimum of 5-10 percent.

However, even 5 percent deposit mortgage are now extremely difficult to come by, and it seems that if the chief executive of the Financial Services Authority gets his way even 10 percent deposits could be outlawed. A recent report suggests that Lord Turner wants deposits to be for at least 15 percent of the property value, and although house prices may have fallen hugely since this time last year this would still mean finding a sizeable sum to put down, which is something that the average first time buyer simply does not have.

Lord Turner is planning a crackdown on the mortgage industry, and has said that during the days of easy credit slack regulatory procedures results in irresponsible lending, describing 100 percent mortgages as particularly foolish. However, if his plan of a minimum 15 percent deposit does come to fruition the government’s aim to increase homeownership will be severely jeopardised as only those with access to large amounts of cash to put down as a deposit will be able to afford to buy a home.

Tags: first time buyers, mortgage industry, nigh, house deposits, Commercial mortgage, high income multiples, tens of thousands