Will the provision of large loan to value mortgages really be the way to introduce confidence into the market and set the first time buyer’s pulses racing? This initiative does not solve the problem of severe job insecurity which is a hurdle that a large number of potential first time buyers are finding impossible to negotiate.
Lenders also have astonishingly short memories. The high % loan to value mortgages in the late 80’s saw properties quickly enter negative equity when the market dropped in value in the early 90’s. The same happened in more dramatic terms in early 2008.
Mervyn King has put forward his thoughts as to the problems in the economy and the spectre of 1.25% interest rates by the end of 2011 is now a real possibility, if not probability. Where will people find the extra amount of interest they need to pay should rates go up when there are few pay rises in any sector? The feeling in the property industry is that any significant rise in interest rates, with 1% being considered very significant, will kill the market stone dead whilst distressing huge numbers of house owners who have struggled through the last 24 months.
All in all, is this really the time for young first time buyers to saddle themselves with a 90 or 95% mortgage?
http://www.guardian.co.uk/money/2011/feb/17/mortgage-lenders-first-time-buyers
David Knapp, Partner
Residential Property
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