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For many first time buyers the news about falling interest rates coupled with speculation that house prices are going to be plummeting is good news, as it means that after years of difficulties when it comes to being able to get onto the property ladder they can finally enjoy some hope of success and affordability. However, just as many first time buyers may have been thinking that the tables had turned and they could finally enjoy becoming a homeowner further problems have emerged that could paid to all that.

A recent report has shown that first time buyers cold face difficulties when it comes to getting a mortgage because lenders are really tightening up on their lending to what they class as higher risk borrowers, which includes borrowers that cannot put down a significant deposit, such as most first time buyers. Most house movers have some level of equity in their home, so when they sell they can take some of that equity and put it towards a deposit on a new home. However, first time buyers do not have this luxury, and therefore many will find themselves being financially penalised simply because they cannot afford a larger deposit.

Over recent months an increasing number of lenders have put policies in place that will see first time buyers being penalised unless they can raise a significant deposit. In the past the traditional deposit required has always been a minimum of 5% but first time buyers have been able to enjoy access to 100% or even 125% mortgages where no deposit was required. Since the onset of the credit crunch, however, an increasing number of lenders have stopped offering these mega-mortgages, which means that first time buyers have already been facing difficulties if they have no savings for a deposit.

However, with more lenders now asking for a higher level of deposit the problems are set to get worse. Many lenders want at least 10%-25% in order to get access to their most competitive rates, with some asking for as much as 40% by way of a deposit. Those that are still allowing first time buyers to take out a mortgage with a 5% deposit are likely to charge far higher rates by way of penalty and to protect themselves against the increased risks.

Industry professionals have also expressed concern that first time buyers were left out in the cold in Alistair Darling's recent first budget. Following Darling's speech one official said: 'Today's speech offers no real respite for first time buyers. The credit crunch has meant that more and more lenders are reluctant to offer mortgages to aspiring home owners. The position for them is worsened by the fact that there is little or no disincentive for landlord-investors to purchase those properties historically destined for first time buyers.'

She added: 'The Goverment continues to leave the next generation high and dry by offering almost no relief in terms of tax or stamp duty. Simply allowing shared ownership property buyers only to have to pay stamp duty when they own 80% of the property will benefit very few individuals.

Tom Smith
8th April 2008

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