Interest Rate Rise Hits First Time Buyers
According to recent research first time buyers in the UK will suffer the most from the recent rise in the base rate by the Bank of England. It is anticipated that first time buyers will struggle to obtain homeowner loans, as well as maintaining existing ones, compared with buy-to-let investors over the next few months due to the rise in interest rates.
A survey carried out by the Royal Institution of Chartered Surveyors (RICS) has revealed that the cost of owning a home in the UK is at its worst levels since 1992.
RICS economist, David Stubbs, said: "January's surprise interest rate rise is likely to soften new buyer enquiries in the coming months but those buyers who have already taken the housing market plunge could find mortgage companies knocking at their doors in the near future as affordability conditions bite."
RICS feel that buy-to-let investors are better placed to absorb the recent interest rate rise, as they tend to be older and subsequently have larger disposable incomes. First time buyers, however, may start to falter with mortgage repayments as household budgets struggle to cope with the financial burden.
The survey showed that 11,860 of the UK's 11.65million mortgages had fallen into arrears from June 2005 to June 2006. Around 6.6 per cent of UK mortgages were buy-to-let with only 0.69 per cent of these in arrears.
With increasing inflation and interest rate rises, many would-be homeowners may be forced to rent, a scenario that will greatly benefit buy-to-let investors.
The Building Societies Association (BSA) pointed out that over 50 per cent of first time buyers have opted for fixed rate homeowner loans.
Neil Johnson, PR Policy Manager at the BSA, said: "For those yet to buy a home, the rising rates are a problem, but there are many among those who have already taken on mortgages and stretched their affordability who are not affected because they have fixed rate loans."
Alisdair Milton
26th January 2007
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