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The tough times for first time buyers in the UK housing market look set to continue. The subprime mortgage crisis in the US has caused banks financial hardships, and with the global reach of many High Street names it was surely only a matter of time before the financial uncertainty in the US spread to the UK.
Average house prices in the UK have now risen to around GBP160,000. This means a couple buying their first home would need a deposit of at least GBP8,000 and a combined yearly income of GBP50,000. Of course, this assumes that they can still get a mortgage with a relatively high loan to value (LTV) rate of 95%.
Despite recent cuts to the base interest rate by the Bank of England, many mortgage providers are failing to pass these cuts on to consumers. In a move born from greed, mortgage providers are keen to protect their profit margins at the expense of first time buyers, looking to get a foot on the property ladder.
Equally, with so many established home owners able to use the equity from record breaking house price rises in the last few years, it is becoming more and more difficult for first time buyers to find competitive mortgages. The high LTV first time buyers require also weighs heavily a
gainst them when compared against the equity heavy home owners who are moving properties.
In the face of the deepening subprime crisis, and facing significant profit cuts or even losses, mortgage lenders are now tightening their lending criteria. The fear is that the 95% LTV mortgages days are numbered, as lenders push for larger deposits and smaller LTVs. On top of this lenders are weighting interest rates to discourage borrowers from taking up high LTV mortgages, forcing buyers to come up with much higher deposits.
The increasing cost of University education is also taking it's toll. With UK students leaving University with an average of GBP13,000 of debt, it is taking longer for buyers to save up their deposits. Student loans are no longer the sole source of debt for students, with reckless lending by banks and a number of credit cards aimed at students all increasing the burden of debt for many young people.
Juggling their existing debts while struggling to qualify for lenders' increasingly harsh mortgage qualification criteria is making mortgages for first time buyers tougher than ever. With a gloomy financial outlook, both for the UK and globally, this trend looks set to continue for some time.
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