Things have not been easy for the average first time buyers for many years when it comes to getting onto the property ladder. The last ten years has seen many first time buyers priced out of the market, as property prices in the UK have rocketed, leaving many unable to entertain the idea of getting on to the property ladder because of the cost of buying a home. However, property prices have been falling over the past year, and are expected to continue falling for the foreseeable future.

However, whilst this may have been welcome news for first time buyers, the global credit crunch also came along, and wreaked havoc in he financial markets, including the mortgage sector.

Popular mortgage products with first time buyers, such as 125 percent and 100 percent mortgages, quickly disappeared from the shelves. Even the traditional 95 percent mortgage is no longer the norm with most lenders, and there are fewer and fewer lenders that now offer competitive mortgages to those with even a 10 percent deposit.

This has made things very difficult for first time buyers, as many have little in the way of savings, and this group does not have a previous property from which to take equity to put towards a deposit. However, lenders are being far more cautious and are saving their most competitive deals for those with deposits of over 25 percent or even 40 percent in some cases. This means that many first time buyers with just a modest deposit to put down are paying a fortune extra in interest every year because of the level of deposit that they have.

One recent report has suggested that the average first time buyer with just a small deposit could be paying thousands of pounds extra in interest each year compared to someone taking out exactly the same loan but with a 40 percent deposit.

One industry official stated: “The mortgage market is entirely back to normal as long as you have a deposit of 40 percent which is okay for some remortgagers – but of course that is a long way from normal and doesn’t help the housing market as by definition to move up to larger properties families need to stretch their borrowing.”

He added: “It is encouraging that there are good deals out there but disappointing that the choice is reduced for those with smaller deposits who will typically be first-time buyers or those who have bought in recent years and have not seen a significant rise in their homes value.”

He continued: “The differences in true cost for the same loan are simply staggering. An extra £2,200 a year is a substantial slice out of anyone’s budget and that price differential will continue to act as a drag on the market.”

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