Mortgage Advice Centre

In looking at tips to get on the property ladder One option is to part rent part buy. The most popular avenue for this scheme is the governments New Home Build Scheme which is targetted at certain areas of the country and at certain key workers.

Who Can Get Funding?

Household incomes must be less than £60,000 a year

• You must be a first time buyer or a previous home owner who can no longer afford it
• Or a housing association or council tenant
• Also you must be a ‘key worker’ (a key public sector worker, like a nurse or teacher)

Shared Ownership Schemes

If you are not eligible for the Governments New Home Build scheme, you could look into shared ownership mortgages. This involves buying part of the property and sharing ownership with someone else. If the bank holds the other share then you can buy them out over time. Shared ownership mortgages

Are Part Rent Part Buy Schemes A Good idea?

On the one hand they make buying a home realistic and enable you to get on the property ladder earlier. It means you will be able to benefit from rising house prices, but, equally it means you can suffer from falling house prices. With interest rates currently low, the cost of mortgage payments may be less than renting. But, if interest rates rose your mortgage payments will rise too, plus you will have to pay the additional rent.

Key Worker programme at Direct Gov UK

New Part Rent Part Buy scheme at Direct Gov

With house prices around 25% lower than recent peaks, now is becoming a good time to get on the property ladder.

The problem is that despite the house price falls, UK house prices still remain relatively high. However, given shortage of supply in UK, it would be inadvisable to wait for property prices to fall significantly more. - It might simply never happen.

These are some tips for Getting on the Property Ladder

Saving Discipline.

More tips for saving for your first mortgage deposit

Borrow From Parents.

The CML found nearly 80% of first time homeowners under 30 were borrowing from their parents. This shows how reliant young people are becoming on their parents to get on the property ladder. If you find it difficult to approach your parents for help with a deposit. Try consider writing up a realistic plan which gives them a benefit from lending. This may make it easier.

Move to Cheaper Parts of the Country / Your Town.

House prices vary tremendously between different parts of the country or even within a city. Setting your sites on a different district / area may mean housing becomes much more realistic.

Part Rent / Part Buy

This is a government scheme which could help you to buy a house. It involves getting a mortgage for part of the cost and paying rent on the remainder. There are more details here New Home Build Scheme

Mortgage in Someone Else’s Name.

If getting a deposit is difficult, you could consider asking your parents to act as a guarantor or get a mortgage in their name. This is not ideal but it could be the only way to get on the property ladder.

See also

• 10 Tips for Getting First mortgage

Despite tentative signs of a recovery  in UK house prices the UK mortgage Market looks to be weak. The price comparison website moneysupermarket.com said that the number of mortgage deals on offer to first time buyers continues to remain very low at just over 1,000.

Two of Britain’s biggest house builders have stated that the lack of mortgages presents a major obstacle to recovery.  Given the general gloom over mortgage deals on offer, it was rather a surprise to see Nationwide offer a return of a 125% mortgage for those homeowners struggling with negative equity. It is a sign Nationwide are optimistic about house prices for 2010.

The Council of Mortgage Lenders have reported an increase in the number of first time buyers receiving help from parents to buy a house. It seems the recent crash has done little to change the British desire to own a house. If parents are willing to help their children, this could be a factor in increasing long term house price to incomes ratios. Nearly 80% of first time buyers under 30 received help from parents in 2009, compared to 40% in 2006 [report at CML]

Repaying of Mortgages

The period of house prices falls has seen a big shift in repayments. Rather than using housing wealth for equity withdrawal. Home owners have been using the period of low interest rates to over pay their mortgage. It remains to be seen when banks will take advantage of this repayment to start lending more again.

How Long Will Low Interest rates Last?

The Bank kept interest rates at 0.5% again this month, meaning many homeowners continue to benefit from low interest rates. However, with signs of economic recovery and the prospect of inflation, these interest rates may not last much longer. And this is reflected in the rise in fixed rate mortgages

Another issue for the long term, is how changes in the UK Banking system will effect competition and the price of mortgages on offer. The big two mortgage lenders (Santander, Lloyds / TSB / Halifax) now control over 50% of the mortgage market - a worrying sign of market concentration.

Related

Bank lending rates

Price of New Homes

Redrow said its average selling price was £137,500 - down 12.4% from the previous year. Barratt’s average selling price fell 14% in the same period to £157,000.

It is rather ironic that Spain’s banking system largely avoided the toxic mess of the subprime fiasco. Santander / Abbey (Spanish owned) has been one of the few high street banks able to keep a reasonable supply of mortgages as its parent company did not make the kind of losses many UK banks made. However, despite pursuing responsible banking, Spain is witnessing its fastest ever house price falls (House prices fell 7.6% in Q1 of 2009) as the global recession and glut in supply push prices lower.

Spain had a great housing boom during the period 1997-2007. According to the IMF, Spanish house prices rose 17% higher than market fundamentals suggested during this period, this was a bigger imbalance than the US, where house prices were estimated to be 12% overvalued. The boom in house prices was largely fuelled by investors, both domestic and foreign. The boom in prices also caused an unprecedented boom in house building. At the height of the boom in 2007, Spain built more houses than the UK, Germany and Italy put together.

Spain is now faced with a record 600,000 unsold properties, idly sitting by with few potential buyers in prospect. It is this glut of unsold properties that will push prices lower and mean prices do not recover for a long time.

In addition to the glut in supply, the Spanish economy has been badly hit by the global downturn. Unemployment, previously high, as risen to 18% of the workforce. Job losses have been particularly construction sector which once fuelled the economy. Spain has also found membership of the Euro creates problems as well as benefits. Stuck in the Euro, they are not able to devalue to regain competitiveness like the UK has in recent years.

Unfortunately, the outlook for Spanish house prices is grim. With economic recovery still in the distance, it will take a long time to entice buyers back into the housing market and deal with the surplus of Spanish housing.

If you always fancied buying an apartment on the Costa del Sol, there could be some real bargains in the next couple of years.

Spanish Housing Market

Mortgage lending is still very low with only 43,414 mortgages were approved in May. Net mortgage lending in May stood at just  £324 million. This was 10% of the level 12 months previous. Yet, despite, a reluctance to lend mortgages, Nationwide reported house prices again managed to rise for the third time in four months. Average house prices are now £156,442, 10% lower than this time last year.

The house price rises reflect a shortage of housing on the market. The price rise comes amidst thin trading, though some estate agents have reported an upturn in interest.

This graph shows how Bank of England base rates have fallen much more sharply than standard variable rates.

Even with base rates kept close to 0%, banks are starting to put up fixed rate mortgages. Generally, if you can take advantage of a fixed rate mortgage now is a good time to get it.

The increased gap between standard variable rates and Bank of England rates reflects.

• Banks wanting to increase profitability after losing money during credit crunch.
• Banks needing to attract savings to improve liquidity ratios.
• Interbank lending rates (3 Month Libor) not falling in line with base rates.
• Decreased competition between banks allowing greater monopoly power.

This graph shows the increased gap between saving rates and lending rates. Basically, this is a banks profit margin, and it has been increasing in recent years.

When Interest Rates Rise

One good thing about the gap between base rates and SVR rates is that when the Bank of England pushes up base rates, commercial banks may not pass on the whole rate rise onto consumers.

For example, when the Bank of England cut base rates by 5%, my lender (Standard Life) cut rates by about 2.25%. Thus if the Bank of England does push up interest rates back to 5% in 2010, I will be (hopefully!) insualated from some of the rise.

Competition and SVRs

In the Long run, I think there is legitimate concern over the growing monopolisation of the Banking industry. With 2 companies now controlling over 50% of the mortgage market share, there is scope for increased prices to consumers