How The Recession Will Impact First Time Buyers And The Property Market
It's fair to say that the coronavirus pandemic blind-sided us all. As a result most of the economy was closed down and the government announced earlier today that the UK is officially in recession for the first time since the 2008 financial crisis. With this news comes uncertainty for the future, especially if you were on the verge of buying your first house. But things might not be as bleak as they seem.
Mortgage lenders might be requiring a larger deposit and steering away from the affordable five percent - but house prices are generally known to fall during a recession because there are less people looking to invest in something as expensive as a new home.
Moneysavingexpert.com's Martin Lewis (we couldn't leave him out of an economically-angled story) had some advice for LADbible readers. He said: "Interest rates in the UK are low right now, they are limboing well below the lowest they've ever been in 375 years.
"Interest rates of 0.1 percent, well that just shouldn't happen, but it's exactly what we have at the moment.
"That means mortgage rates are incredibly cheap. Ludicrously low financing if you can nail one of those deals. Most of what you would repay would be paying back what you borrowed as opposed to covering the interest.
"The problem is that it's much more difficult to get a mortgage as a first time buyer and you're going to need a much bigger deposit. Some lenders are moving towards 15 percent deposits for first time buyers and the rates aren't necessarily that good.
"But don't panic too much and don't push your finances if you can't afford it. Don't let property porn draw you in. It's not a bad time to hold.
"Talk to a mortgage broker, but don't pay any fee up front until you get a mortgage. Then you'll find out which mortgage brokers are likely to accept you, especially if you only have a smaller deposit. But think about the rate - if it's too high, is it the right time to be buying?"
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Brian Murphy, head of lending at Mortgage Advice Bureau, told LADbible: "There are some positive signs across the housing market as we start to tip toe out of lockdown - and still plenty of ways for first time buyers to get an all-important foot on the ladder.
"Before Covid-19, many first time buyers were able to take advantage of mortgages where only a 5 percent deposit was required. However, although there are currently fewer of those types of high loan-to-value mortgages available, some budding homeowners have used the lockdown to boost their savings to give them a 10 percent or even 15 percent deposit.
"With less consumer spending on holidays, leisure, or entertainment such as live music events, people are using the money saved for a bigger deposit. This, coupled with the recent changes to stamp duty also means that even further savings can be made - again this could be used to put a larger deposit in."
Michael Fitzgerald, Chairman at Coulters Property, added: "Having said this, it's important to think about some of the potential downsides to buying a house in these uncertain times - primarily you need to be confident you can afford to live in the house long-term."
Providing tips to first time buyers, James Carson-Lee, Mortgage & Protection Adviser at Options Mortgage Centre, said: "In a post-Covid world the 10 percent deposit is a diamond in the rough - not impossible by any stretch but there only a few lenders out there willing and able."
James goes on to recommend a 15 percent deposit, before stressing the importance of spending within your means. He said: "A crude way to calculate what you can borrow is to take your gross annual income and multiple it by 4.75.
"Check your credit rating and perhaps try a multi agency credit checking service such as checkmyfile, you may be great with one agency but not with another."
For more information on the recession, you can watch our explainer video here.
Featured Image Credit: PA