First Time Homebuyers in Scotland Being Frozen Out of the Market
Due to the recession and the slump in the housing market, lenders are requiring higher deposits on mortgages before they will approve a loan for a person interested in purchasing a new home.
These deposits are quite high, often amounting to 25% of the property value. This is a very steep amount for young people who want to buy their first home because they have not been able to save up enough money for the down payment, which means that the housing market is virtually open only to those who are well-off financially.
The job market is less than optimistic, which forces many people to consider expensive rental accommodations because of the shortage of quality housing at reasonable prices.
Experts in the industry say that this situation is detrimental to the economy because first-time home buyers are essential for the continued growth of the chain in the process of house-buying. These buyers provide new money at the bottom level of the chain where it is most needed.
According to the Council of Mortgage Lenders, the total of mortgages approved for the month of August was an estimated £12.6 billion. This figure shows a substantial decline from the previous month when the total mortgage lending amounted to £14.5 billion.
The differences are more startling when compared with the totals for the same months of 2008. The gross mortgage lending for August, 2008 was almost £0 million, representing a drop of 37% over one year.
August has been the worst month so far in terms of the amount of money approved for mortgages.
The average deposit required for first-time home buyers stands at £25,000, which is about 13% higher than the initial deposit required in 2008. The average price of a two-bedroom flat is about £100,000, which means that anyone considering making such a purchase must have the required deposit in order to take out a mortgage.
John Kelly, an estate agent operating in Glasgow, Scotland, said he has never seen such a dramatic decrease in housing sales. He says, “The onerous requirements for deposits of at least 25% are greatly limiting most people’s ability to get on the housing ladder. If the flow of first-time buyers is restricted for too long then it will impact negatively on the market as a whole. We’ve witnessed a palpable increase in banks’ willingness to lend money in recent months, but there hasn’t been a great deal of loosening of the criteria.”
He went on to say, “You can still get products that don’t require you to give a 25% deposit, but you’ll pay a hefty premium percentage rate. Banks will argue they’re only rebuilding their balance sheets as they’ve been instructed to do by government, but there are some pretty healthy margins out there – especially if people don’t have the 25% deposit. We have a national obsession with focusing on short-term trends … I think it’s a situation where market pressures and market competitiveness will force a rethink of risk profiling.”
Estate agents report that many young people looking to buy a first home need to borrow the deposit money from other sources. Many of them borrow from their parents. Sue Anderson, speaking on behalf of the Council of Mortgage Lenders, says that the dream of most people is to become homeowners. However, their dream has been hampered by the high deposits and most are borrowing heavily from friends and family or opting for shared ownership.
According to Stuart Wylie of Remax Platinum the housing market is restricted to those who have the funding in place and are able to make the deposit. He says the situation that exists today is new and that “eighteen months ago it wouldn’t have been a major barrier if they didn’t have the necessary funds in place because there were so many deals available. Now some clients won’t even take viewings unless a mortgage is in place.”
The Scottish government launched a Lift Scheme in April which would give first time homebuyers 20-30% of the value of a new home on a shared ownership basis. So far this has resulted in 622 sales across the country.
Tags: first time buyers, palpable increase, Remax Platinum, first time home, 25% deposit mortgages, finance
