My mum and dad want their house back!
It might not be the sentiment of all mums and dads “yes of course we love you” but don’t you think its time you had a place of your own! So many potential first time buyers are finding that they are still living at home with mum and dad because economic pressure means they simply cannot afford to move out of the family home. Current statistics show that in places like London and the South East the average age of a first time buyer is 35, the issue with the first purchase is not necessarily affording it or affording to move or affording to pay a mortgage, a lot of would be first time buyers who have taken the rental option to get out into a property and a home of their own are now finding in July 2009 that the rent that they are paying to a residential landlord is actually more than they would be paying if they had their own mortgage.
So what is stumbling block?
The honest answer is the credit crunch and the attitude of banks has changed significantly with two major effects one being what is known as LTV or Loan to Value, the amount of money by way of a percentage of the purchase price that a bank or a building society will lend to a purchaser and this is normally associated with the level of risk perceived by the lender. This then dictates how much deposit the purchaser needs to have to enable him or her to acquire their new home.
In the good old days of 2007 loan to values commonly could be as high as 95% depending on the nature of the property and nature of the purchaser or borrower, so 5% as a deposit wasn’t too onerous to find compared to in 2009, a deposit can be anything between 25% and 35% of the property’s purchase price. To put this in layman’s terms, a 23 year old, just started first job and earning £15,000 a year buying with his girlfriend who also earns a similar salary have seen a nice two bedroom town house that’s for sale at £120,000 and the building society will lend 75% loan to the value. This young couple therefore need to raise £30,000 but if they work for the first year and earn £30,000 gross between them after tax deductions, cost of living, rent, rates, heat, light etc, how long will it take for them to be able to save the £30,000 deposit?
However as this year has slowly progressed things do seem to be starting to slowly improve so its not all gloom and doom. The banks and building societies, regulated by the FSA, are trying to release the break that has been put on loan to value and some of the larger banks and building societies are moving towards a 90% – 95% loan to value type product for first time buyers.
There was a product identified recently by Lloyds TSB were they would lend 90%-95% loan to value so long as a parent or guarantor was willing to place £20,000 in a deposit account with the bank, that 20% acting as a security to the deposit that wasn’t given. Other lenders have also indicated that they are more willing to provide mortgages at higher LTV’s to help first time buyers re-enter the market which at the same time will help sales and purchases for all other home owners.
Why are lenders now beginning to consider higher LTV’s again. Lets think about it for a second. The property market goes down in East Yorkshire in 2008 by 15%-20% and the lending institutions have become risk averse, not wanting to get associated with risks as they seem to think it was lending money to property purchasers that lead to problems along the way to the global credit crunch and so they have been demanding higher deposits. If the property market has gone down by 15%-20% then you could argue that the purchase price of the property today is 80% of what it was in 2007 but, most encouragingly, property prices are now being reported as stabilising and even increasing slightly.
Therefore lenders are beginning to look at home buyers with some cautious optimism as the market starts to come back and continue through 2010 and 2011. If we get back to 2007 levels of value there will be an additional 20% security in the property for any lender. Add this 20% on top of the deposit already provided, and so you can see that there the risks associated with their lending policy is reduced as the housing market revives and as homeowners we all rediscover the feel good factor of home ownership.
In some ways, the moral of the story is really for mums and dads who can and want to help sons and daughters get into properties of their own is to go into the property with a deposit based on a percentage share, so that if mums and dads have to put, say, 25% into the purchase of a property and subsequently the property goes up in value then when at a later date the property is sold, mum and dad can get their stake of the net sale proceeds which will prove to be a far greater return than it would be on the equivalent cash in a bank or building society deposit. The only cautionary note to add even though they are your son or daughter it is good professional advice to enter into a written agreement, that is signed by both parties that can be seen therefore to be legally binding and a record of the loan.
A number of lenders are now trying to marry investors capital to investment schemes that will give a higher return to investors, and this may produce an equity share product for the likes of first time buyers almost on a co-ownership basis to help them make their purchase. Lots of first time buyers look to family and friends for the deposit or a little bit of help and if parents are in a position to be able to provide this assistance then it means that sons and daughters can get into the property market and onto the property ladder ahead of a rise in property values in 2009 (Q4) and 2010 (Q1&Q2).
Whilst we all hope that there will be a return to lower deposits, all buyers should be aware that lenders have different attitudes currently to modern town houses, older property and also modern apartment schemes and this may affect how much deposit is required dependent upon the type of property being bought. The social engineering policy heralded by central government in 2003 by way of social engineering, by planning policy in creating large numbers of these apartment developments in city centres now does not appear to be the flavour of the month with the lenders and purchasers should be aware that there will be a difference in attitude and lending policy which will manifest itself in the loan to value when looking to purchase an apartment instead of the likes of a town house.
The property market is not like a maze albeit that on some occasions to some first time buyers it will certainly feel like a maze with lots of blind alleyways and dead ends, but the market is finding its feet, the property market is coming back, of that there is no doubt. For first time buyers trying to get into the market sooner rather than later has to be the watch word and the guidance, so as to be able to get in at an affordable price after the 2008 property correction in East Yorkshire. As property prices start to rise in the final quarter of 2009 and the early part of 2010 the gap and the size of the deposit required by first time buyers will only become bigger which just simply means that first time buyers will have to stay at home longer, until such time as they have saved the larger deposit, even if the loan to value on mortgage products increases as property price and property security increases as the market comes back to strength.
Find out more about property for sale in Beverley and mortgage products availible to you – visit Stanifords or call – 01482 631133
