First-time buyers require large deposits
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by Kay Mitchell
The withdrawal of 95% and 100% mortgages has meant that first-time buyers need an even bigger deposit to get onto the property ladder, in spite of falling property prices.
Some lenders are still willing to advance 95% of a property’s value, however, this comes with higher interest rates.
An average first-time buyer property in London costs around Â£250,000 and according to the Council of Mortgage Lenders, this means a deposit of around Â£32,500, as well as having to find cash to pay stamp duty, legal fees and removal costs.
The average London property is currently around Â£350,000 and the deposit required would be Â£45,500, plus Â£10,500 in stamp duty. This totals Â£56,000 which, in 1990, would have purchased the average London property.
Last week, Abbey announced that it is to continue to offer 95% mortgages but borrowers could no longer add arrangement fees to the deal. Consequently, a borrower would need to find Â£2,500, in addition to the 5% deposits.
According to Howard Archer of Global Insight, the figures highlight the major affordability crisis which first-time buyers are facing in the capital.
Richard Roberts of financial consultants Route Group explained that those who do get away with smaller deposits end up on worse mortgage rates and are at risk of falling into negative equity. Mr Roberts believes that in the short-term, there will be no improvement to the situation.
Nicholas Leeming of propertyfinder.com said stamp duty should be abolished for all first-time buyers and that action must be taken to stimulate the money markets and encourage lenders to offer mortgages at a reasonable rate with slightly looser criteria.
A recent report by Hometrack, the housing intelligence company, revealed that a 10% decline in property prices will mean a fifth of those currently priced out of the market will be able to purchase a 2 or 3 bedroom home.
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