Struggling Array First Time Buyers Get a Helping Hand

House prices continue to rocket in Britain, rising by 204% between 1997 and 2007, significantly outstripping the growth in earnings which rose by only 94%.

The situation poses special problems for prospective first time buyers. Those not yet on the housing ladder are keener than ever to make the leap before prices spiral further out of their reach but those who have their mortgage already may be finding it more and more difficult to make the payments as interest rates rise. Figures show that, on average, first time buyers are now spending almost one fifth of their income to meet their mortgage obligations compared to roughly one tenth about ten years ago.

Barring some tremendous and unforeseen change in government policy, high property prices look like becoming a permanent feature of life in Britain. Already, the typical price of a house is approximately seven times that of the average annual income and some analysts predict that could rise to become an amazing ten times average income within the next two decades.

As a result of these intense market conditions, banks are modifying some of their traditional lending practices to make it all a bit easier for those preparing to purchase property for the first time. In the past, for example, the maximum amount you could borrow on a mortgage was pegged at 3 times your annual income. Now there is much more flexibility and some banks are willing to lend you up to five times your income.

Mortgage terms have also changed. Ten years used to be the norm but, with a little prodding from Gordon Brown, who thinks that the prevalence of high and volatile mortgage repayments is a source of instability in the British economy, several banks have now introduced fixed-rate mortgages with 25 year and even 30 year terms. Traditionally, consumers have been reluctant to enter into such long contract arrangements, seeing it as an almost lifelong commitment which can be difficult to reconcile with changes in their own personal circumstances such as marriage break-up, a change of job or a move to a new area. The penalty fees levied by banks for early repayment have been a further deterrent. A number of banks have recognised this problem and, in an attempt to remedy it, are now offering mortgages without punitive fees for early repayment.

Quite a few banks have also introduced specially designed first time buyer mortgages. Typically these will require a lower deposit than other mortgages, offer fixed-rate payments for the first few years and often thereā s some kind of cashback arrangement thrown in too to help purchasers through those difficult early years.

As Britainā s property market continues to experience almost permanent boom conditions, no doubt lending institutions will be forced to innovate further to let those hard-pressed would-be first time buyers fulfil their property-owning dreams.

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