The Return Of First-Time Buyers

Are wannabe first-time buyers creeping back? Christina Jordan explains why she is beginning to think now is a good time to buy.

According to some estimates, 40% of mortgage applications in January came from first-time buyers. This has exploded from just 10% in October last year.

Green shoots of a recovery in the housing market? Don't get your hopes up. Mortgage approvals are still down so I am not suggesting that hoards of first-time buyers are piling back into the market.

But the rise in applications does suggest that their interest is being piqued -- and that, at least, is a good thing.

Why now?

Well aside from the fact that January is traditionally a busy time in the housing market, house prices are also continuing to fall. While this may not be great for homeowners, for those looking to buy it does make property purchase more affordable.

According to Nationwide the average property fell by 1.3% in January to £150,501, a drop of 16.6% over the year. This is good news for first-time buyers, assuming they can get a mortgage.

Tighter lending criteria over the last year has been the stumbling block for many FTBs -- and it is still a problem.

According to Nationwide new buyer enquiries have been increasing strongly in the last few months but this has not been translating into increased mortgage approvals. It suggests that this is partly because buyers are in no rush to buy, but also partly because they cannot find suitable mortgage finance.

The last year has indeed seen lenders demand larger deposits from first-time buyers, with the best deals available to those with at least 25% upfront. But is the mortgage freeze beginning to thaw?

More, more, more

Recent research suggests that buyers now have more lenders to choose from, and more products to apply for. There are currently over 20 lenders offering 75 different deals at 90% loan-to-value (the loan as a proportion of the property's value) compared with 18 lenders just two weeks ago.

And two lenders are offering deals up to 95% LTV - i.e. you only need a 5% deposit. These are Clydesdale and Yorkshire Banks (sister banks offering the same range), and Ipswich Building Society.

If the number of high LTV deals increases further, and they are offered at more attractive prices, it is reasonable to suppose that the higher levels of first-time buyer interest could start to materialise into actual sales.

Fingers crossed the latest batch of Government interventions improves the availability of credit and kick-starts more lending.

Bigger deposits

Another positive piece of first-time buyer news is the fact that they have been, and are continuing, to save more toward a deposit.

A significant 40% of those waiting to buy are increasing the amount they are saving towards a deposit this year, according to Abbey. Those who already have savings are aiming to put away over £200 a month more to boost their deposit before buying. And those who haven't yet started saving say they are hoping to put away £120 a month.

The optimists among us might predict we will hit a tipping point later this year, when house prices will have got low enough, first-time buyers ill have saved big enough deposits and lenders will have begun lending sufficiently to really get the market moving.

And that could be the start of a recovery in the housing market.

That's my theory anyway and for that reason, as an aspiring first-time buyer, I'm beginning to think that now is a good time to buy before the pent-up demand spills over into sales again.

After all, right now, you can offer a seller less than you think the home is worth, on the basis that the market still has some way to fall and buyers are few and far between. Once we hit the bottom, buyers may start to flood the market and sellers may start factoring in rises, instead.

But of course, I could be completely wrong and you could lose thousands. Indeed, many pundits believe we could see a 15% fall in house prices this year, and that there won't be a recovery until 2011. So now could be a very bad time to buy.

The fact is, it is impossible to know the future of house price or Base Rate movements, or levels of mortgage business. as last year's woefully inaccurate predictions by Halifax and the Council of Mortgage Lenders showed. (Neither predicted even a 1% fall!)

What I think matters most is that you should buy a property because you like it, because you want to become a long-term homeowner and because you can afford the repayments comfortably, allowing for a decent leeway if rates rise (which they inevitably will).

Mortgages on the market

If you think it is the right time for you to make that first step onto the housing ladder, what are the best deals for you?

Below is a selection of my favourite deals for first-time buyers, excluding those with extortionate fees, since most of us have enough upfront costs to contend with. I have based my decisions on mortgages from 75% to 95% LTV and looked at fixed and tracker deals.

*First-time buyers must be a member of the society (by holding a savings account for example)

Remember, if you are fixing your rate for less than five years, it's vital to make sure you can afford the repayment at a higher rate to avoid possible payment shock at the end of your deal.

Compare mortgages now!