Outlook may not be that grim for first-time buyers

7 June 2010

It continues to be a difficult time for first-time buyers. There’s still an imbalance between property values and average incomes, with the average house costing more than nine times the average salary despite property values being 10% lower than their peak in 2007.

Property values have been rising in recent months, pushed up by a lack of supply as many home owners have adopted a wait and see approach. But at least prices are expected to stay fairly flat in the coming months. fragile, with unemployment at a 16-year high and growing fears that it is about to escalate further as the coalition government bites into public spending.

Meanwhile, availability of mortgage products remains a serious issue with a lack of funding available to lenders and, as a result, a concentration on lower LTV business.

This is reinforced by fears that a double dip in house prices and LTVs may yet occur.

So against all this doom and gloom are there any rays of sunshine?

In short, yes, some as a result of the refreshed political landscape. First-time buyers should not be too despondent.

First, there may be an increase in the number of buy-to-let properties coming onto the market as investors bail out ahead of a potential increase in Capital Gains Tax.

Continuing unrest in the eurozone is playing a part - in time, this may lead to lower mortgage rates here

Such properties are often the type that are favoured by first-time buyers and there may soon be better buying opportunities than there were a few months ago.

Second, money market rates have fallen by as much as 0.4% in the aftermath of the general election as markets anticipate the effect of the massive cuts in store for the public sector on the economy.

Continuing unrest in the eurozone is also playing a part. In time, this may lead to lower mortgage rates here.

Despite the cool funding climate and a concentration on lower LTV business there are signs that more 90% LTV and even 95% LTV products are coming onto the market, which is good news.

Also, products linked to guarantees and friends and family deposits - an extension of the services provided by the bank of mum and dad - are making the first-time buyer environment slightly easier.

And another potential gain for first-timers could lie in the increases in tax allowances being mooted by some in the government.

Housing policy too could promote a more favourable environment for them.

In opposition the Conservatives were supportive of improving the position on Stamp Duty for first-time buyers, with the Liberal Democrats slightly cooler on this.

But the coalition agreement promises that ”we will review the effectiveness of the raising of the Stamp Duty threshold for first-time buyers”.

There are also signs that the government will promote shared ownership, providing first-timers with an easier point of entry to home ownership. The emergency Budget on June 22 is keenly awaited.

So there’s no denying that it’s still a tough world for most consumers including first-time buyers but there are undoubtedly some grounds for optimism.

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