Is now a good time to buy for first-time buyers?

by John Fitzsimons on 23 April 2010  |  2 comments
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The Stamp Duty threshold may have been raised to £250,000, but are the conditions right for first-time buyers to get onto the property ladder?

Today's debate is on whether now represents a good time for first-time buyers to purchase their first home.

We asked our Nigel Lewis, property expert at Findaproperty.com and Phil Calderbank, director at lettingsearch.co.uk to tell us what they think.

Nigel Lewis, property expert at FindaProperty.com

Now is a great time to buy!

Is now a good time for first-time buyers to buy?

If you’re a first time buyer asking yourself that question then you’re in a very fortunate position. Alistair Darling has dangled a very juicy carrot in front of first-time buyers with the new Stamp Duty regulations and this will tempt a lot more in to the market. Despite these changes to Stamp Duty there will still be many people who considered themselves first-time buyer material two or three years ago who now find themselves only able to rent. The mortgages that would have enabled them to buy a property in the past are no longer available and we’re unlikely to see the same levels of laissez-faire lending ever again.

But the biggest issue for first-time buyers stepping onto the housing ladder is finding the deposit – in our latest survey half of the respondents confirmed that. Happily, there are signs that lenders are beginning to relent as property prices have settled down and this has led to a slight fall in the deposit first time buyers need to scrape together. It’s now easier for them to buy their first home than at any point since the start of the credit crunch. 

But the window of opportunity may be small. House prices at the entry-level end of the market are showing the first signs of moving upwards again and this could make homes more expensive over the coming months.  Although more properties are coming onto the market, there are still 12% fewer entry-level homes available compared to the same time last year so it would take a large injection of new stock to level out prices once more.

Even though the recession seems to be waning, first-time buyers should not stretch their finances just to get onto the housing ladder – the property market is still in a very delicate state and it would not take much to knock it off track. Many buyers were stung by negative equity when the market began to fall at the end of 2007, so let’s not make the same mistakes again.  

Phil Calderbank, director at lettingsearch.co.uk

Stick to renting!

For many of today’s first-time buyers hesitantly reaching for the first rung of the property ladder, the future is far from clear. Rising house prices are at risk of a double dip, lending is restricted and mortgage rates are high compared to the base rate, as are the plethora of other up front costs associated with house purchase, such as survey and conveyancing fees.

The Government’s Stamp Duty concession for first-time buyer properties up to £250,000, announced in the Budget will have little impact on the ability to buy. It will save buyers a maximum of £2,500, which is nothing compared to the £62,500 deposit they will need to raise for a 75% mortgage.

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Consequently in answer to the perpetually asked question ‘is now the right time to buy?’ I would have to say that the answer, for the majority of cases, is no.

There are substantial barriers for first-time buyers looking to enter the market at the moment. However, on top of this, the fundamentals underpinning today’s housing market are shaky at best, and periods of soaring house price inflation followed by significant price falls when the bubble bursts are becoming an all too familiar trend. Against this backdrop, even those able to raise the large deposit needed, as well as securing a mortgage, should consider the risks carefully before taking the plunge.

Many who bought at the height of the market in 2007 have seen their property fall into negative equity or, at the very least, the equity held in the property has fallen substantially. Repayments may also have soared for those coming to an end of low fixed rate loans and unemployment has left some homeowners repossessed.

At a time like this, renting is undoubtedly a more attractive option for many, removing the risks and the need for substantial up front costs and offering greater flexibility both financially and in terms of where you choose to live. In line with this, our lettings agents and landlords are reporting growing instances of longer periods of tenure.

In addition, a recent survey of lettingsearch.co.uk users suggests that, faced with the difficulty of raising the money for a deposit or securing a mortgage, an increasing number of potential first-time buyers will take the decision to turn away from home ownership altogether over the next few years. 

In fact, our latest research makes a case for giving up the aspiration of home ownership altogether, expelling the myth that buying is cheaper than renting. When the basic costs of renting and buying were compared over a 25 year period - the span of a standard mortgage - it was revealed that it would be nearly £10,000 cheaper to rent an average home than to buy it. 

While home ownership will inevitably remain a key aspiration for a significant proportion of the British public, the simple truth is that, for many people, this ideal no longer makes financial sense.

So what do you think? Is now a good time for first-time buyers to take the plunge? Or should they stick to renting and wait gor house prices to fall? Let us know your views via the comment box below!