How The Credit Crunch Has Effected First Time Buyer Mortgages In The UK

Prior to the "credit crunch" of 2008/09 there were literally thousands of first time

buyer mortgages available to prospective UK mortgage borrowers.It was the penchant with which the mortgage lenders were aggressively propagating the mortgage loans to first time buyer mortgage with an intention that they will be long run customers to them.First time buyers are, in many senses, the driving force of the entire UK mortgage market.To maintain the momentum of sales further up the property ladder, there must be a flow of first time buyers moving onto the bottom of the ladder to keep the cycle going.Though it has been observed that lately there has been a sharp fall in the first time buyers as well as the property prices having come to a stand still.

It was possible to obtain first time buyer mortgages prior to the credit crunch, with little or no deposit.To tell the truth in the period during 2005 to 2007 the mortgages were provided as 100% that is without any initial pay required from the customer.Lenders were prepared to take on the risk which high loan to value mortgages inherently pose - and the focus was directed more towards mortgage lending volume than mortgage lending quality.This is not to say that UK mortgage lending was of poor quality prior to the credit crunch - and in fact the mortgage arrears and repossession statistics over the last 24 months have shown clearly that the very vast majority of mortgages provided were of an affordable nature. While the fact still remains that the interest rates are the lowest as of now making it a potential risk for the borrowers to bear any increase in the interest rates in the next 24 months to find it hard to repay them.

The major issue faced by many of the first time buyers at the moment is that of a more tougher lending norms and deposit necessity.The 100% loans will be far from reality even in the next few years to come.First time buyers currently need a deposit of at least 10% of the property purchase price. In any case when the rate of interest is lower it needs at least a 25% margin from the customers.Now the mortgage lenders are providing loans to the first time buyers who hold an excellent credit record and an underwriting profile only .

So what will happen to the first time buyers?. There needs to be transformation at some stage.The financial crisis is now having a very negative impact on the availability of first time buyers as well as the mortgage market in the UK.It would be very difficult if only we can come back to the earlier terms of 100% mortgage loans.But careful measures need to be introduced over the next 24 months to lay the foundations for a stable first time buyer market which will in itself help to stabilise the housing market as a whole.

We can only expect that the there will be vibrant modifications that will come up in the UK mortgage segment to help the first time buyers to get the properties at attractive rates as well.

How The Credit Crunch Has Effected First Time Buyer Mortgages In The UK

By: Shristy Chandran

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