TNationwide’s dismal housing market report this week – showing prices up 2% in August only to hit another painful record – has inevitably been greeted in some quarters as welcome news.
One real estate industry commentator wrote: “I’m delighted to see two positive rounds of market analysis this morning with real estate values hitting new highs, which is an impressive effort, all things considered. The bullet in Rishi Sunak’s arm for the housing market certainly worked.
You wonder if these people ever consider the plight of young workers who struggle to pay high rents and have to save year after year for a deposit, as prices climb more and more out of reach.
On the same day that Nationwide released its bad news for first-time buyers, HSBC followed up with more; he says they won’t be able to get 90% mortgages anymore. At best, they can find an 85% loan. HSBC was nearly the last major bank to offer low-deposit mortgages and was overwhelmed by demand. This means that a mid-priced UK home buyer must now deposit a minimum deposit of £ 33,000 instead of £ 22,000 previously.
It is curious that the banks are leaving the market for first-time buyers. The last time they did this, following the great financial crisis of 2007-08, it was because they had no money to lend. Today, it is the opposite; banks are teeming with huge sums of money from unspent money during the coronavirus lockdown.
Why don’t they lend it? Perhaps they think they will soon face a wave of arrears and defaults when the mortgage holidays and leave plans end and we see the real state of the economy. Maybe they think that if they lend 90% of the money to buy a £ 250,000 house, if they have to repossess in a year or two, they won’t get all their money back.
As the boss of a bridging company, Glenhawk, puts it: “The end of the holidays, which will be the trigger for a painful winter for millions of people, is imminent, and it is before we even take it into account. has a second peak. The market appears dangerously close to bubble territory; it’s a question of whether, not when, it breaks out.
So where does that leave the first buyers?
1) There is always Nationwide. He has a 90% to 3.24% mortgage, but with a lot of conditions. You can’t use the money to buy an apartment or new build (which is currently insanely overvalued anyway), you can only borrow for a maximum of 25 years, not the 30-40 year terms which are, imprudently, become common elsewhere. And you can’t just ask your mom and dad to give you the deposit – to get a mortgage with a 10% deposit, the buyer has to prove that they have saved 75% of that deposit themselves.
2) Broker Ray Boulger de Charcol is a fan of the Barclays Family Springboard deal. The bank will lend you 100% of the cost of buying your home, so there is no need for a deposit. So what’s the catch? Well, you need an assistant – although it might not be your parents – who is willing to put a sum equal to 10% of the purchase price of the property into one of the Helpful Start accounts in the bank. They’ll even get a decent interest rate, by current standards, on the money in the account – currently 1.6%. During this time, the buyer pays an interest rate of 2.95% on the mortgage, fixed over five years. It is a very interesting case.
3) Borrow your deposit or have someone borrow on your behalf. Not to recommend, but brokers tell me it’s in progress. Unsecured personal loans are very cheap – for example, the TSB currently offers five-year unsecured personal loans at 2.81%, which is cheaper than the rate a first-time buyer could pay on a secured mortgage. on a property. Of course, there’s the small issue of monthly repayments, which largely destroys that strategy; that’s £ 357 per month for £ 20,000.
4) Keep renting and wait for the prices to come down. It is a risky game to play. There is currently a ‘space race’, with young families leaving the cities to buy properties where they can work from home with more space and a good sized garden. If you want to buy there, put on your skates before the prices go up even further out of reach. But if your thing is an apartment in the city center, you can probably afford to be out of the market, save more bond, and see prices stagnate or drop next year.
5) Follow the golden rules for first-time buyers. Avoid single beds, stretch to a double bed if possible. The demand for one-bed apartments (including shared ownership) evaporates during recessions and values drop dramatically. The two beds also allow you to rent a room if your finances are bad. Buy the worst house on the best road you can afford, then fix it while living in it. This is the best way to climb the ranks. And avoid all leasehold land.
You may also want to watch this year’s budget more closely than usual. Sunak energized the market with the reduction of stamp duties. But he desperately wants to raise taxes. One idea that is making its way onto the Treasury’s agenda is an increase in capital gains tax, equalizing with income tax rates. This will have a dramatic impact on lenders who, assuming the CGT rate doesn’t increase until April of next year, will rush to sell at least some of their portfolios before incurring the additional fees. One of the things that is driving prices up now is a shortage of properties for sale; we could see the reverse later this year if the owners decide it’s time to sell and get out.