Save before you buy, says Abbey, as it locks in first-time buyers' cash

First Home accounts will help would-be owners, but they must watch the rate, warns Julian Knight

You have to feel for wannabe first-time buyers. For years they saw house prices soar away. They may have told themselves to wait as prices would fall back again when the housing market bubble burst. After all, this scenario had happened before and has come to pass again. Last week, Nationwide said that UK house prices had fallen around 15 per cent year on year, that's equivalent to £30,000 wiped off the value of the average house.

Under normal circumstances, such falls would lead to first-time buyers breaking cover, keen to snap up a property at a discount. But this time around, things are different. Even if first-timers want to buy, they are being hamstrung by the new, far-tighter criteria being imposed by lenders. As a result of the credit crunch, lenders that are finding it tough to raise cash through the international money markets, and who are spooked by bad debts, are asking mortgage borrowers for bigger deposits – sometimes as high as 10 or 15 per cent of the property value and, even in the new world of lower house prices, this is a lot to ask. Saving before you buy is the mantra of the times.

In response to this, one of the UK's biggest lenders, Abbey, is launching its First Home saver account. The account – which is strictly limited to 5,000 new openings – is designed for people looking to save for their first home. Account holders have to be aged between 16 and 35 and agree to pay in £100 to £300 a month by standing order. No partial withdrawals are allowed and customers who miss a standing order payment will receive only 0.1 per cent interest until the full payments are resumed. The account will pay 8 per cent interest, considerably above the Bank of England base rate. However, this is variable and can be reduced or increased by the Abbey at any time.

"The days of 100 per cent and 95 per cent mortgages are well and truly over. People need to save and this seems an innovative way to do it," said Andrew Hagger from financial advice website moneynet.co.uk. But "in the current climate, saving £300 a month may not be enough. It could still take four or five years to get a deposit together just using this account, people should consider saving into a best-buy individual savings account alongside this."

There is a caveat with the Abbey account, when the account holder decides to close their account, they have to have a meeting with one of Abbey's mortgage brokers. "The idea of this ... is to migrate the savings customer into the more profitable mortgage one," said David Hollingworth from broker London & Country. "I understand that the customer doesn't have to take a mortgage with the Abbey, just see the adviser. What they are best doing is taking the high interest rate on offer, see the Abbey adviser, but also compare what is being offered by other lenders and go for what suits," he said.

But Michelle Slade from financial information provider Moneyfacts.co.uk said that some customers may feel obliged to buy their mortgage from the Abbey. "Some people may feel pressured into taking this account or simply awkward saying no to the adviser, others may not have the know how to shop around for a better deal."

Ms Slade also queries the headline-grabbing 8 per cent rate: "This makes it a best buy, but the Abbey can vary this anytime and this may well happen with the Bank likely to lower [the base] rate soon. With most savings accounts, the rate is fixed for a specific period. The Barclays Monthly Saver, say, pays 7.49 per cent fixed for 12 months, is open to anyone and there is no requirement to see a mortgage adviser."

Caught in the Credit Crunch: 'I like the discipline of not taking money out'

Louise Kelly, 34, a marketing executive from Bath, is typical of Britain's frustrated would-be first-time buyers. "I have a good job, decent salary and save, but I don't have a hope of getting a big enough deposit together to get a mortgage for the next two years at least."

Ms Kelly (pictured) has even moved out of rented accommodation and back in with her parents: "I contribute to bills but apart from that I live rent free; this is so I can save for a deposit."

The idea of an account such as Abbey's First Home Saver, that requires regular monthly contributions, appeals to Ms Kelly: "I like the discipline of not being able to take money out, provided it comes with a high rate of interest."

Despite falls in house prices, she is not put off from getting on the housing ladder: "Hopefully by the time I have saved for a deposit the market will still be in the doldrums. That way I can get the most for my money." She is also sanguine about Abbey's requirement to see an adviser: "I will look at the whole market and talk to different people to see what mortgage is right for me."