2011 may be a good year for first-timers

Although the number of first-time buyers plunged dramatically in 2010 to 160,000 – against about half a million in boom years – many young people believe 2011 could be a good year to buy their first home.

That’s the surprise finding of a survey by the first-time buyer website FirstRungNow.com, which found 40 per cent of its respondents could already pull together a ten per cent deposit – though at the moment this is not necessarily enough to secure a mortgage.

It seems many potential buyers think prices are falling, as Nationwide’s latest survey showed, and are set to go lower in 2011.

So long as interest rates remain low, this appears to suggest an opening for first timers.

As leading agents Savills mentioned some weeks ago, prices are falling faster on poorer property in secondary areas.

Many first-time buyers also seem to think that lenders could have more to lend in 2011.

FirstRungNow director Helen Adams said: “We know lenders are building up capital reserves, which limits their lending right now, but we believe that in 2011 they will want to revert to near normal business.

“Almost three quarters of our respondents have already saved a five per cent deposit.”

“It is time for lenders to see the sense of incentivising or subsidising financially challenged borrowers trying to get on the first rung of the property ladder.”

Adams suggests that banks and building societies could make this subsidy by charging higher administrative and survey fees on better-off homebuyers higher up the ladder.

If they did so, much lower charges and fees could be levied on first-time buyers. By lowering the costs of purchase, lenders would be enabling more first timers to go ahead.

“This would breathe life into the currently oxygen-starved property industry,” she said.

Since the credit crunch, first-time buyers – seen as a riskier proposition – often have to pay much more to borrow the same amount of money than borrowers holding a larger slice of equity in their homes.

Critics claim that this risks creating a generation of second-class homebuyers.

The FirstRungNow survey found that two thirds of respondents believe that 2011 will be a better time to buy a first home than 2010.

A significant 69 per cent are also optimistic that they will qualify for a loan.

Adams says: “Aspiring first-time buyers need a bit of a reality check – they need a significant deposit, to understand that lenders are very careful about who they lend to and that additional costs such as mortgage payment protection will probably be required.”

So, are first-time buyers correct to see 2011 as a year of opportunity?

Ray Boulger, at leading mortgage broker John Charcol, said: “These survey findings may be slightly skewed because any would-be first-time buyers still looking at a website like FirstRungNow are serious about buying a home.”

“One of the changes since the early days of the credit crunch is that would-be first-time buyers better understand what is happening in the mortgage market than they did two years ago.”

“They realise that if they are not reasonably close to a purchase by now, there is less point in looking at websites like this.”

However, Boulger says there are several signs to encourage first-time buyers.

“Clearly prices have been drifting down and could continue to do so for the next six months. With lower prices and fewer buyers, there is a better chance of a bargain. Secondly, first-time buyers are unlikely to feel that if they can’t buy this month, they will pay more in two months’ time. That pressure is gone for the moment. After a delay, they might actually pay less.”

“Thirdly, some lenders are adjusting policies to ensure first-time buyers pay lower costs of purchase: different mortgage options enable a buyer to have a lower interest rate and higher purchasing costs, or lower fees and a higher mortgage rate.”

Boulger says first-time buyers can boost their chances of getting a loan by having a mortgage approved in principle before looking for a property, getting on the electoral role as soon as possible and staying on it, not moving too frequently, not exceeding agreed overdrafts and to use debit rather than credit cards as it gives a lenders a better idea of spending.