Property editor

Falling house prices should benefit first-time buyers who can nab a property at a lower price. But in the reality of a recession, they will not find it any easier to get on the ladder.

In fact, they may even find it more difficult. The reason why house prices drop – unemployment, falling incomes – affects those first-time buyers trying to buy too, leaving them frozen out of the market.

三级成人视频Here’s why wannabe first-time buyers should not necessarily rejoice at house price falls.

If house prices are going down, won’t first-time buyers benefit?

House price growth tends to echo the rise and fall of GDP. This is because as unemployment rises and incomes fall, there is less demand to buy property due to economic uncertainty and lower confidence in the market. 

If house prices are expected to fall, then it’s likely they will do so in a self-fulfilling prophecy – although that doesn’t seem to be happening during this current mini-boom for a number of reasons, mainly down to the stamp duty holiday stimulating demand and buyer psychology post-lockdown.

In this recession, unemployment is forecast to rise sharply as the furlough scheme is unwound. This will particularly hit young people, whose jobs have already been disproportionately affected by lockdown, with many working in hospitality.

三级成人视频Would-be first-time buyers’ incomes will be hit, which will affect their ability to borrow. And amid falling prices and such uncertainty, banks are unwilling to lend to first-time buyers seen as "risky", particularly those with low deposits in comparison to the house price.

三级成人视频Low-deposit loans have disappeared from the market, so borrowers now need 15pc of a property’s price as a deposit. Given the average house price in Britain is £232,000, this means borrowers need £34,800 in cash before banks will consider their application.

The Resolution Foundation, a think tank, found that even when house prices do slump, first-time buyers will not benefit because the recession will lead to falls in income. In the 1990s, an average couple saving 5pc of their income could save for a deposit in four years. Now that figure is 21 years.

It said that even if the Office for Budget Responsibility’s worst case scenario for house prices played out – a 22pc fall by the third quarter of 2021 – it would lead to just a year’s less saving for an average deposit.

As a result of this lending crunch, the only first-time buyers who could benefit from these price falls are those with a hefty deposit already saved, or those who don't need to take out a mortgage.

Why are banks so reluctant to lend to first-time buyers?

Banks worry about buyers falling into negative equity at a time of house price falls. This happens when the amount of money borrowed from the bank is higher than the actual price of the property. 

As a result, there are very few mortgages available for those with deposits that are 5pc or 10pc of the property’s price. Research by Defaqto, the analyst, showed that there were only 28 of these deals available, when normally there are hundreds of options for first-time buyers.

Some lenders have also put on other restrictions, such as not lending on properties that are newer than two years old , as these come with a new-build premium, and so will lose even more value during house price falls.

Others have refused to lend to first-time buyers who are using a lot of help from the Bank of Mum and Dad for the deposit. Nationwide has said it will only offer mortgages to those who have saved 75pc of the deposit themselves, as it suggests they will be better able to make the repayments.

The stamp duty problem

Before Chancellor Rishi Sunak introduced the stamp duty holiday, temporarily abolishing the tax for properties up to the value of £500,000 and cutting it for those worth more, first-time buyers had an advantage.

They did not have to pay it on properties up to £300,000, and for those up to £500,000 would pay reduced rates. 

Now, first-time buyers are at a disadvantage. Although they are eligible for the stamp duty saving, the new rules benefit those buying more expensive properties.

It means they have lost their edge over those trying to buy similar properties, usually buy-to-let investors and people buying a second home.

This could increase competition and therefore push up prices of these first-time buyer homes. Analysis by estate agency Hamptons suggests that so far, this has not been borne out: inquiries since the stamp duty holiday was announced from first-time buyers is up 45pc, compared with those buying a buy-to-let property at 28pc and a second home at 22pc. 

三级成人视频But this data show inquiries, and not actual sales. We might find that while demand and inquiries for properties are high, tight mortgage rules mean that these first-timers who want to buy are not actually able to. 

What about Help to Buy?

三级成人视频The Government scheme that allows people to buy new-build properties using a 5pc deposit with a state-backed loan of 20pc is still running – but you must act soon. In April 2021, the rules change, tapering the scheme to make it available to fewer people. 

From then, it is only open to first-time buyers, and you can only purchase property that is under regional price caps, rather than the current £600,000 limit. This means that it will be more difficult to use the scheme to buy in certain areas, such as cities where property prices are higher than the regional average. These include Cambridge, Harrogate, Warwick and York.

The scheme may be the only way that those with lower deposits can buy a property for some time, as banks tighten their rules.