Barney McCarthy examines how attitudes to property have altered in recent years

“The past is a foreign country; they do things differently there.” So reads the first line of The Go-Between and while the chances are that LP Hartley wasn’t referring to the UK property market, this famous quote rings true for the changing face of home ownership. Gone are the days when it was a simple case of leaving home and buying your first property before slowly but surely working your way up the ladder before perhaps trading down in retirement. A host of obstacles now face first-time buyers trying to get onto the property ladder, while some others simply prefer the freedom of renting.

Trade body the Council of Mortgage Lenders’ (CML) research article, ‘Fuzzy households, fuzzy tenures’, highlights how housing tenures have become interconnected as never before with increasing numbers of people flitting between the private rental sector and home ownership a number of times during their adult lives, as well as owning more than multiple property, some of which they don’t even live in. The CML attributes the shift to a number of factors including affordability considerations, increasing numbers of people attending university, the need to be geographically mobile for work, more fluid household structures and inward migration – all drivers of demand for private rental property.

This is a low

Research by Halifax shows that the number of first-time buyers is at its lowest level since 1980 and that the average house is unaffordable for them in 466 out of 483 towns. Martin Ellis, chief economist at Halifax, says: “Rising property values have priced many potential first-time buyers out of the housing market. When they do enter the market, people are more likely to be in their 30s rather than their 20s, and buy a flat rather than a terraced house. First-time buyers are also buying proportionately more in cities and towns as they opt for convenience over size.”

But despite the dwindling numbers of first-time buyers, CML figures show that the average age that people take their first step onto the property ladder hasn’t changed too dramatically. Three decades ago the average age was 27 and while it reached 31 in the early noughties, it has now been nudged back down to 31 years old. Perhaps the main difference is that while in the 1970s it may have been more common to live with parents until moving out, people now often leave home to attend university and rent for a couple of years before buying.

To buy or not to buy

Renting a property is sometimes seen as pouring money into a black hole when you could be saving to buy, but the modern generation has a more relaxed attitude to renting than their forebears. Living in areas they wouldn’t be able to afford to buy property in, the flexibility to be able to move at short notice and proximity to work are all considerations that make people favour renting over buying.

Abbey publishes an annual UK rent versus buy index and its most recent findings show that the monthly cost of the two is converging. With rising house prices and Bank Base Rates, it is now only £5,811 cheaper to buy rather rent over a 25-year period. There is one obvious difference though, as Abbey’s head of mortgages Nici Audhlam-Gardiner points out. “While on a month-to-month basis in some areas it is cheaper to rent than buy, at the end of the 25 years a homeowner actually has a house whereas a renter has nothing,” she says. “In addition, homeowners benefit from any further house prices rises as the value of their equity increases over time.”

Paragon Mortgages, a specialist buy-to-let lender that regularly publishes data about the rental market, says that rental accommodation is particularly sought after in the current environment when people are unsure about buying. Managing director John Heron says: “Landlords remain confident about the long-term prospects of residential property investment, as the UK population continues to grow on the back of inward migration and other demographic factors.”

Whether you choose to rent or buy will be determined by a number of factors, not just a simple case of personal wealth. With a diverse property market where shared ownership schemes sit alongside a growing number of single occupants and buy-to-let landlords, the only thing that’s for sure is that your situation is unlikely to be unique.

Despite doom and gloom in the national press, recent mortgage lending figures paint a healthier picture. Barney McCarthy looks at the facts.

January is often portrayed as a bleak month and it’s no wonder. With harsh weather, a dire financial situation plaguing many people, not to mention bulging waistlines after the excess of the festive season, it is easy to see why it is renowned for being the most depressing month on the calendar. If you are trying to sell your property, your mood is likely to have been darkened further by recent reports of a house price crash or, at the very least, a flattening out in values.

But it is important to retain a balanced perspective on things. House prices may be reaching a plateau, but they are still at historically high levels. The phenomenal growth spurt of the last few years had to end some time and a slight cooling of the market needn’t represent the nightmare some have been envisaging in recent months.

Lies, damn lies and statistics

Halifax’s reported growth across all regions in 2007, revealing that UK house prices increased by 5.2% between the end of 2006 and the same period in 2007. Looking ahead, Halifax envisages a flat period for house prices with modest price growth continuing in certain areas such as southern England and Scotland. Martin Ellis, chief economist for Halifax, says sound economic fundamentals and lower interest rates will support house prices in 2008. “The UK economy is expected to deliver its 65th successive quarter of GDP growth during the year, extending the longest running period of unbroken growth on record. The Bank of England’s Monetary Policy Committee is likely to follow up December’s cut by reducing the Bank Rate at least twice in 2008.”

According to the Council of Mortgage Lenders (CML), 2007 was the strongest year ever for gross mortgage lending. It rose by 5% to an estimated £362bn, outstripping the CML’s October 2007 forecast of £360bn. This means that the amount being borrowed is at a record high and supports the Halifax’s claims that house prices have continued to rise.

Andrew Montlake, partner at independent mortgage broker Cobalt Capital, maintains a pragmatic attitude. “I agree with the CML that the outlook is more positive,” he says. “There is a very good chance of an interest rate cut in February and at least one more during 2008, which will incentivise borrowers and restore much needed confidence. At the same time, falling LIBOR and swap rate are bringing succour to the banks. We’re by no means out of the woods yet but I’m confident things will be a lot rosier by Spring.”

Research conducted by Your Mortgage shows that while most areas are expected to see slight price falls in 2008, the majority will recover and experience growth in 2009 and beyond. All regions are expected to have posted improved figures by 2012, although some rises are more modest than others. Average house prices in Walsall in the West Midlands for example are only expected to improve by 1.1% by 2012, while some areas in London could rise by over 30%. To see how house prices will change in your area over the next five years, visit our property price predictor.

As first-time buyer, falling prices may seem like manna from heaven, but it is worth bearing in mind that the credit crunch has led to lenders being more cautious with their criteria, so you may still not be able to borrow as much as you would like. The beginning of the year has traditionally been a quiet of time for buying and selling as people avoid the upheaval of all the paperwork and moving house over Christmas, plus the current market conditions would seem to suggest now may not be an opportune time given the expected lull.

But don’t let the harbingers of doom put you off for too long. It is important to put the present climate in context of the astronomical rises of the last few years and realise that the current calm may not be such a bad thing.

Innovative mortgages that do not require a deposit can help you get onto the property ladder sooner rather than later. Barney McCarthy finds out more

As a first-time buyer in a market characterised by soaring house prices and rising interest rates, you may feel like a passenger rooted to the platform as a runaway train rattles past. But don’t feel like you’ll never start your journey, as there are plenty of ways you can jump aboard.

The high price of potential properties is likely to be the fi rst obstacle in your way. If you are struggling to raise a deposit, then it may be worth looking at borrowing a larger proportion of the property’s value. Research from independent brokerage Mortgage Advice Bureau (MAB) revealed a 50 per cent increase in the number of first-time buyers taking out mortgages without a deposit (also known as 100 per cent mortgages) in 2006 compared with 2005.

Buyer beware

MAB does urge borrowers to be aware of the repercussions of such mortgages though, as they often charge a higher interest rate and many carry Higher Lending Charges.

Brian Murphy, lending manager at MAB, says: “Many people in the market still view deposit-free mortgages as the final resort for mortgage borrowing. However, the increasing numbers of buyers opting for these products over the past year shows that these mortgages are now a very good solution for first-time buyers who stand little hope of entering the
housing market without them. They offer these buyers an opportunity to move away from increasing monthly rental payments, without forcing them to put money down as a deposit.”

Pros and cons

The obvious benefit of a mortgage without a deposit is that it allows you to get on the ladder straight away. With house prices rising at the rate they are, Nationwide says that you would need to save £50 a day just to keep pace with house price rises. The money you save by not having to pay a deposit could also free up funds for other moving essentials such as furniture and appliances. But don’t think that you won’t have to part with any cash. If your desired property costs over £125,000 then you will be liable for Stamp Duty.

The majority of 100 per cent mortgages will also be charged at higher interest rates and you may not be able to move house if the property decreases in value as you will owe the lender more than the property is worth. While it can provide a viable option now, a deposit-free mortgage may not be the best deal for you in the long term.

Abbey is one of the lenders that offers a 100 per cent mortgage and acknowledged in recent research the difficulties that first-time buyers face trying to accrue a deposit. It said that of the potential first-time buyers saving for a deposit, 11.2m of them have admitted dipping into their saving accounts.

Difficult save

Worse still, it found that one in 10 raid their savings once a month and 888,000 use some of the money destined for their deposit every week. In light of this, it may be worth taking out a savings account that doesn’t allow you to withdraw from it for a locked-in period if you don’t trust your own discipline.

Ricky Okey, managing director of Abbey for Intermediaries, says: “As surprising as the research is, it does go a long way to explaining why so many people are finding it hard to get onto the property ladder, and why of the first time
buyers we spoke to, we found that there is a strong demand for 100 per cent mortgages as many have not been able to save a deposit large enough.”

Research from Alliance & Leicester suggests the 100 per cent plus mortgage market will grow by around 10 per cent over the next two years and suggests that over three-quarters of mortgage brokers have already advised on this type of product.

Take your time

Though 100 per cent mortgages are a helpful option for first-time buyers and can completely remove the need for a deposit, don’t think this gives you carte blanche to be financially irresponsible. You will still need discipline to make your mortgage repayments and these will often be charged at a higher rate than if you had opted for a more conventional mortgage. See 100 per cent deals as a possible choice, but not necessarily the most cost-effective way on board the property express.

Definitions

100% Mortgages
As well as the host of lenders offering deposit-free 100% mortgages, a handful of lenders also offer loans up to 125% of the property’s value. These products aren’t always purely a mortgage though, and often contain a secured loan element.
Northern Rock’s Together mortgage is perhaps the most long-standing example of this, offering 95% of the property value as a mortgage and a further 30% as an unsecured loan. BM Solutions – a lender whose products you can only access via a broker – also offers a similar proposition called Mortgage Plus. Don’t assume that these products completely remove the need for a deposit though as part of the unsecured loan sometimes has to serve as a 5% deposit. They are usually only available to borrowers with an impeccable credit rating too, and note that the total loan size is limited.

Higher lending charges
Higher Lending Charges (HLCs) are fee imposed when you borrow over a certain percentage of the property value, usually 90%. If you are borrowing this kind of proportion, it inevitably means you have a small deposit, so mortgage lenders charge HLCs to cover the risk involved. They may be charged upfront, or built into the overall loan size. Not all lenders charge HLCs, so it is worth shopping around if you require a high loan-to-value mortgage and don’t have a
substantial deposit.

Save yourself!

Higher Lending Charges (HLCs) are fees imposed when you borrow over a certain percentage of the property value, usually 90%. If you are borrowing this kind of proportion, it inevitably means you have a small deposit, so mortgage lenders charge HLCs to cover the risk involved. They may be charged upfront, or built into the overall loan size. Not all lenders charge HLCs, so it is worth shopping around if you require a high loan-to-value mortgage and don’t have a
substantial deposit.