First-time buyers – what does the current market mean for you?

FIRST-TIME buyers planning to get on the property ladder in 2020 will now be wondering whether their future will feature home ownership after all. The property market is at somewhat of a standstill with estate agents closed and viewings halted.

The number of new property sales agreed in the UK has fallen by 70% since the start of the coronavirus restrictions, according to homes listing site Zoopla. The offer of a three-month mortgage holidays has also meant that normal lending business is stalling.

Lenders are putting much of their resources into processing the requests, with about 1 million borrowers applying. As a result, the number of residential mortgages on offer has halved in a little more than three weeks, with banks and building societies axing deals. However, there’s no need to lose hope of property ownership. Here’s what you need to know:

First time buyers – Getting a mortgage:

In addition to slashing the number of mortgages offered, some lenders are only accepting applications for those with large deposits, blocking the way for first-time buyers with small deposits.

The good news is that there are still over 2,500 mortgages available, and many lenders are still offering 95% loan to value – that is, loans for those with a 5% deposit. Getting a mortgage approved at the moment is a challenge, partly to do with the fact that the closure of non-essential businesses and social distancing rules means that valuers are unable to get out to value property.

Lenders are wary of approving loans for those with less than a 40% deposit which means many first-time buyers won’t get a look in. However, this is a temporary situation and while the future of anything is currently unclear, mortgage providers still want to lend once lockdown is lifted. Better still, borrowing is still extremely cheap. The Bank of England base rate is 0.1% – a record low. While mortgages won’t be offered at that kind of level there are some extremely cheap deals around. It’s important to find a mortgage broker that doesn’t charge fees who can help steer you through the market and work out the best value home loan available to you.

What house prices will do this year

The property market looked like it was bouncing back in 2020, getting off to its strongest start for four years. However, the coronavirus impact on the housing market has bought this crashing down.

Since the housing market freeze was announced last month, Savills has forecast a 5 -10% short-term price fall. According to global consultancy Knight Frank, prices will fall by only 3% and will rebound next year. For comparison, in 2008 when the financial crisis hit, house prices suffered their biggest drop on record, plummeting by 16%.

Many more forecasts will be made, but a comforting thought for first-time buyers is that prices are unlikely to rise, and that it will be a buyer’s market.

In the middle of a purchase – what next?

Many first-time buyers are already on their way to home ownership but have been stopped in their tracks. Government guidance published on 26 March made it clear that people who haven’t yet exchanged contracts on a property purchase should put off doing so.

The good news is that lenders are responding by being flexible. Some are extending the mortgage offers for first-time buyers (as well as home movers) by an extra three months where contracts have been exchanged. And Santander has announced an automatic two-month extension for all borrowers that submitted a purchase application before 31 March and have not yet exchanged. Others could follow.

Hiten Ganatra, managing director of Milton Keynes mortgage brokers Visionary Finance, says: “Staying in touch with your lender or your broker if you have one, is crucial to make sure you secure your mortgage offer for as long as you need it. These are unchartered waters for all of us, but communication is key.

“For first-time buyers not yet this far down the line, the future is rather unclear. But having a mortgage broker by your side will help give you a clear picture on the financial front.”