Posted on 27 March 2013
So the British Bankers Association’s (BBA) February figures show a drop in mortgage approvals for purchases of 6% compared to the same month in 2012. Many industry analysts claim the drop is a timely reminder that despite last year’s introduction of the Funding for Lending scheme, the mortgage and housing markets were still a long way off functioning properly. The BBA report then makes the blindingly obvious statement that more First Time buyers would help. How though do you find more of the supposedly elusive creatures? With rental prices being driven ever higher, there are many people who’d rather pay their own mortgage than someone else’s.
However there would appear to be two main factors stopping a new First Time Buyer making the move into property ownership, Lending Criteria and Consumer confidence.
Lending criteria particularly for First Time Buyers is still far too prohibitive and many good cases are being declined for reasons that most sane people would describe as petty. After the mortgage price war we’ve seen over the past few months, a relaxation in criteria would seem the only logical step left to try and increase lending levels, however lenders are worried about going too far and being described as reckless.
Consumer confidence is still running low, as the stubbornly high inflation level and low wage growth continues to squeeze household incomes, leaving many would be borrowers without the appetite to take on debt. The economic outlook remains uncertain at best, and it would seem that it’s not likely to change anytime soon. The plus point though is that many properties are more realistically priced, and therefore offering better value for money. It could be said to be a great time to buy.
More schemes that essentially prop up the big house builders (First Buy, NewBuy, Help To Buy) are not the answer, decent product innovation is. For those who don’t have access to the ‘Bank of Mum & Dad’, a good example of this is the Saffron Building Society’s ‘Rent To Buy’ scheme. The product is open to those want-to-be First Time Buyers who have been renting for a minimum of 12 months, and it’s available at 95% LTV upto a maximum loan size of £500,000. The core principle of the scheme is that by only opening it to applicants who’ve been renting for 12 months, they are looking at people who are already experienced at running a household and therefore more likely to handle a mortgage payment that’s likely to be at least the equivalent of the rent. The rate is fixed until 31/08/2016, but there are no penalties for overpayments or early redemption, and crucially, the lender ‘credit checks’ rather than ‘credit scores’ which makes it more likely for a sensible lending decision to be reached. More of this type of product is what we need to get the market (and people) moving again..
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