Recent reports have suggested that first time buyers in the UK are still in the throes of an affordability crisis, despite the falling house prices and despite predictions that interest rates are set to fall a number of times this year. First time buyers have been experiencing affordability problems for some time now, and fewer and fewer first time buyers find themselves in a position to get onto the property ladder.

Over recent years property values in the UK have rocketed, and this has resulted in many first time buyers being unable to get their foot on to the property ladder simply because they were not able to take out such a large mortgage or afford repayments on such a large loan. This problem was eased to some degree as a result of lenders deciding to increase income multiples so that struggling first time buyers could qualify for larger loans, and to increase repayment periods, so that they could spread the loan over a longer term and reduce monthly repayments.

However, around this time the interest rate hikes began, and between August 2006 and July 2007 the base rate rose from 4.5% to 5.75% after a series of five 0.25% hikes. This again impacted on affordability for first time buyers, as they could only get a mortgage at higher rates, which meant that their repayments would be high. With no equity from a previous property to use as backup this made things increasingly difficult.

The interest rate fell for the first time in two years in December, and experts are predicting that it will fall several times this year. However, although this is good news for both first time buyers and homeowners, first time buyers have been dealt another blow. The 100% mortgages that these buyers often relied on to avoid having to pay a deposit have been taken off the shelves by many lenders, and to make matters worse the initial deposit required has been raised by some lenders from the traditional 5% to 10%.

The credit crunch has not helped the situation, and has played a pivotal role in many lenders’ decisions to raise the deposit levels required, as well a contributing to the tighter credit conditions that face all borrowers at present.

One official recently stated: “At the start of 2008, first-time buyers are finding it even harder to get a foothold on the housing ladder and the signs are that conditions are unlikely to get better in the short term. Mortgage lenders are demanding ever higher deposits as the credit crunch continues to take effect.”

With other upfront fees to find such as solicitor costs and valuation fees, and with no previous property from which to use equity, first time buyers could find it very difficult to meet the increased deposit requirement that some lenders have brought in, and this could once again hamper their chances of getting on to the property ladder.

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