First-Time Buyers Set To Struggle already More

With the continued rise in house prices and interest rates, it’s little surprise that first-time buyers have been finding it difficult to make those first, tentative steps onto the character ladder – especially when you consider that in the current UK character market the average price of a house will cost around £175,000!

A few years ago, mortgage providers came to realise that although many first-time buyers were capable of meeting mortgage repayments, funding a place was proving to be a major stumbling block. In response to the problem, lenders introduced 100% mortgages so that first-time buyers could borrow the value of their home, and so forego the need for a place. However, borrowers would nevertheless be required to stump up for legal fees, stamp duty and other associated costs which would nevertheless amount to a important sum of money.

Further addressing the problem, some lenders then decided to push the envelope a little further by introducing a higher tier of loan-to-value (or LTV) mortgages – some as high as 125%. This made a huge difference to first-time buyers, and mortgage lenders reported an upsurge of applicants in the wake of the introduction of these higher value loans. However, once the credit crunch hit home, it signalled the end for LTV mortgages, with one eminent UK mortgage provider almost collapsing altogether!

The credit crunch which affected the US sub-chief market had harsh ramifications across the global financial market, and in the UK many lenders tightened their belts and began to tread warily when it came to lending. Many lenders withdrew their higher LTV mortgage products, but up until very recently, they were nevertheless obtainable by some lenders; however now they are no longer obtainable, many first-time buyers find themselves desperately trying to raise enough cash for a place.

Finding a place isn’t the only obstacle which possible first-time buyers need to negotiate however. In both England and Wales, Home Information Packs (HIPS) are now legally required for any home put up for sale after December 2007 already though they have proven unpopular with both buyers and sellers alike. Sellers are required to pay to have them produced, and while they are free for possible buyers, the seller is entitled to charge a fee to cover reproduction and postage.

Stamp duty bills are also rising with the average stamp duty bill – a government levy which applies to the sale or move of land – standing at an average seven per cent of annual earnings. Many analysts claim that the government has so far failed to change stamp duty bands in line with the economy, and similarities eligible to be charged stamp duty has trebled in the past six years.

Currently stamp duty comes into force when a character is valued above £125,000 but given the average price of a house in the UK, it is apparent that many homes will fall outside of this threshold. The amount payable on stamp duty is dependent on the value of the character – the higher the value, the more stamp duty is payable. However, it has been claimed that if the stamp duty had increased in line with house price inflation over the past ten years, the threshold before stamp duty becomes payable and later bands would be much higher than they are currently.

Martin Ellis, chief economist at Halifax, claims that the Government needs to act on this issue, as a growing number of home buyers are paying the equivalent of more than one-fifth of their annual earnings in stamp duty alone. Furthermore, he also claims the higher-tiered stamp duty thresholds have not been changed since their introduction a decade ago, and calls on the government to raise all stamp duty thresholds in order to explain the rise in house prices over the past decade, and to pre-empt house price inflation in the future.

And it seems he is not alone in this argument – more than two thirds of the country thinks stamp duty needs to be reassessed in order to make houses more affordable to first-time buyers.

Leave a Reply