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First time buyers feeling the pinch

By: Andrew Regan


First-time buyers are retreating from the housing market as property prices drop and the costs of buying increase, according to the Council of Mortgage Lenders (CML).

The number of UK mortgages advanced to first-time buyers fell from 34,800 in August to 28,400 in September, and figures from the CML also showed that 20.4% of first-time buyers’ monthly income went on mortgage interest payments, the highest proportion since 1991.

The CML thinks that the reluctance of first-time buyers to commit has arisen because of higher interest rates, but believes that UK rates have peaked. Even so, growing concerns over the state of the housing market are having a significant impact. Nationwide’s house price index for October showed falling house prices in many areas, and the IMF has announced that it believes the UK housing market to be currently overvalued by 30%.

Further evidence of the market cooling is contained in the CML’s own mortgage approval figures which showed gross mortgage lending for September fall to £30.6bn, a reduction of £3.6bn from August. CML director Michael Coogan thinks that things are unlikely to improve in the short term for prospective first-time buyers. He said: “The Bank of England’s decision to leave interest rates unchanged will have disappointed many borrowers and those hoping to buy. Looking forward, affordability is likely to constrain buying activity, which we expect to remain subdued.”

The amount borrowed by first-time buyers amounted to £3.8bn in September, compared to £4.7bn in August, with the average first-time mortgage balance worth £118,750 in September, compared to a marginally higher £119,000 in the previous month.

The CML is hoping for a Bank of England interest rate drop, but has also warned that the recent credit crunch is still to fully impact on the housing market. He also points out that it’s not just first-time buyers that are suffering - mortgage interest payments are now accounting for 17.5% of income of movers already on the property ladder, an increase of 0.2% on August figures; the highest level since 1992.

However, it’s not all bad news for providers of UK mortgages, as two areas of the market appear to be holding their own despite the current financial markets turmoil; the amount of buy-to-let mortgages and remortgages approvals remained constant during August and September.

The Royal Institution of Chartered Surveyors gave support to the CML’s assertions that buyers were feeling the effects of the credit squeeze and higher interest rates. Figures from its latest members’ survey for England and Wales show that prices have fallen for a third month in a row, when they compare mortgages completed this month to last month; grim news for those who have bought property in the last three months.

Article Source: http://www.articles4meandu.com

Andrew Regan is an online, freelance author from Scotland. He is a keen rugby player and enjoys travelling.

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