Buying a house for the first time can be a daunting prospect, but with low interest rate mortgages among other things, there are many advantages to choosing this time to enter the market as a first time buyer. The threat of an early interest rate rise has receded with the GDP figures, which showed a reduction in the economy of 0.5% for the last quarter of 2010.
If there is an increase in negative growth in the property market, the UK may enter a double dip recession, so the Bank of England is expected to keep interest rates low. This means that interest rates are set to remain at the current level of 0.5% well into the first quarter of 2011.
Take your time
Ray Boulger of John Charcol mortgage broker said, “If you are settled and expect to remain in your home for a minimum of four years, and you have a 10% deposit, now is a good time to start looking.” He also added, “Don’t buy expecting to make a quick profit in two or three years. The good thing about buying in this market is that house prices are not moving and you can take your time and not be rushed into a decision.”
Confidence returning
Boulger, the mortgage brokers, say house prices will remain steady in the first half of 2011 but will gradually increase in the summer as confidence returns. He is confident that there will be a 2% increase in property prices by the end of 2011. He also believes that interest rates will rise to no more than 1%, a rise of only 0.5%
Mortgages and deposits
As the majority of lenders will not lend 100% mortgages and require a minimum deposit of 10%, it is important to have this finance in place, which, for first time buying, can often be challenging. The Council of Mortgage Lenders says recent figures for the percentage of earnings going towards mortgage repayments was just 13% in the last quarter of 2010. This is a low figure and is a massive drop from the 20.7% peak, which ate the income of first time buyers in November 2007, and is far lower than the 1990 mortgage rate increase of 15.4%, which equates to 28% of income for first time buyers.
If you have a 10% deposit, you would need a deposit of £14,000 to buy an average home priced at £138,682, according to Halifax figures.
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This post was written by...
Robert – who has written 317 posts on The College Investor.
Robert is the founder and editor of The College Investor, a personal finance site dedicated to young adult and college student finances. You can learn more about him here and connect with him on Twitter or Facebook.
{ 5 comments… read them below or add one }
I think now is a great time to buy. The price is near bottom and the rate is very low. There is some problem with the website. It looks all messed up.
Interest rates are falling once again. If you plan on living in the house for a while, this is a good opportunity to buy.
I’m not too sure that confidence is going to return in the summer. I think the rest of the year will be flat – if we are lucky. We have an awful lot of personal debt and a fragile market, so with belts tightened I don’t think there is much taste for house buying.
If I had a 10 or 20% down payment I would definitely buy a house right now. Then I would rent out half and have my renter pay my mortgage for the first couple of years. But sadly I wasn’t ready for this economic downturn. I will be ready for the next one though.
I think now is a good time to buy if you are willing to stay put for a couple years in the event your house does loose a bit more money. Or if you are just trying to flip. Even if you loose a bit on the value of the house, hopefully, the tax write off and money saved vs renting balances itself out.