It's high time for a first time

'We're not buying a house in order to make money'
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The Independent Online

Years of falling property prices are persuading would-be home owners to bide their time instead of getting on the housing ladder now.

Years of falling property prices are persuading would-be home owners to bide their time instead of getting on the housing ladder now.

Figures from the Council of Mortgage Lenders (CML) show that loans to first-time buyers, which generally account for about 45 per cent of all home loans, were down significantly last month to 29 per cent. Yet is holding off the right strategy or will waiting just make it even harder to get into the market?

Hometrack's latest survey reveals that the average house price hasn't increased this month, with prices even falling slightly in some areas. However, analysts do not foresee widespread declines.

"We do still expect the market to increase this year, although we're not expecting much of a rise in London and the South-east – only 2 or 3 per cent," says Martin Ellis, chief economist at the Halifax.

In the north of England, it's a different story, with prices booming, and Mr Ellis expects the market here to remain strong. So anyone postponing a purchase now in the hope that they'll get a better deal later on in the year could be disappointed. Indeed, they risk being priced out of the market the longer they wait – something that could already be happening.

"If you asked a first-time buyer who took a similar view this time last year, they may say they regret holding off," says David Hollingworth at mortgage broker London & Country. "Throughout the year they just saw prices get higher and higher."

One of the main problems for many potential new buyers at the moment is lack of confidence. "The people who are still buying tend to be existing home owners who have gone through the process before and know what to expect," says Mark Harris, director at mortgage broker Savills Private Finance. "But first-time buyers are more nervous because they are unsure how it all works."

Additionally, those trying to get on the property ladder for the first time tend to have smaller deposits than someone who is selling one house to buy another. This increases the worry of negative equity, particularly at a time when there is some uncertainty in the market anyway. But first-time buyers are being urged not to let this fear get out of proportion.

"The smaller the deposit, the less of a cushion you have against negative equity, but I don't think this is an issue to get too concerned about," says Mr Harris. "If prices do fall, it's unlikely many first-time buyers will be affected, as the overheated areas, such as Kensington and Chelsea [in London], aren't typically where they would buy."

Ray Boulger, senior technical manager at mortgage broker Charcol, agrees: "Although the top end of the market is quite weak, the first-time buyer part, even in London, remains strong."

Even so, if you are looking to purchase your first home, consider where you are buying carefully, particularly if you want to live in a fashionable area. If prices there have risen considerably over the last few years, you may be better off in a slightly less popular area where you will get more for your money and be less exposed to the risk of the bubble bursting on inflated prices.

This doesn't necessarily mean you'll have to live in a completely different area; quite often, you'll only need to go a mile or so away to find a cheaper property.

Mr Boulger believes that events have swung in favour of the first-time buyer. One of the main reasons for the sharp price rises of last year was a severe shortage of properties. As a result, in order to secure a home, many people found they had to offer more than the asking price. In addition, with some properties selling in a matter of hours and buyers under pressure to put in an offer immediately in order not to miss out, there was no time to think about whether this was the place you really wanted to buy.

Now, however, supply has increased, placing the buyer in a much stronger position.

"The last three months have been the first time that buyers have been in control [for quite some time]," says David Bitner, head of product operations at the MarketPlace at Bradford & Bingley. "What you should be doing is putting in a cheeky offer and then working up if needs be. Some properties have been on the market for four or five months so if vendors are desperate, they'll sell."

Undeterred by the current uncertainty in the property market, Kate Westbrook and Stephen Steele have just completed on their first house in Swindon, Wiltshire. They opted for a two-year fixed-rate mortgage from the Nationwide, following advice from mortgage broker London & Country.

They had been thinking about buying for the past year but decided to hold off as Kate was then a trainee solicitor and had been unsure whether she would be kept on by her employer after she qualified.

Once her job was secure, the couple decided to bite the bullet and buy a property of their own.

"We've seen house prices increase by about 10 per cent over the past year in our area, and, yes, the market may be about to crash. But it might simply level off," says Kate.

"You just don't know, and had we waited any longer, prices could have gone up even more. So we thought we might as well go and do it.

"We're not buying a house to make money. Of course it's an investment, but the main reason we're doing it is that we don't want to keep pumping £630 a month into a landlord's pocket."

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