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Present imperfect for first time buyers
by Sarah Modlock
First time buyers have always had to balance fantasy with financial reality, but now many are having to settle for second best. Nine out of 10 first time buyers fail to get the home they want, with a half having to settle on something cheaper, according to a report by lenders Bradford & Bingley.
A third also have to compromise on the area they live in. Although ‘location, location, location' is the one of the key mantras for homebuyers, many struggling first timers have to forfeit plans of living in their ideal area. In addition, more than a quarter have to move further out of town, sacrificing their desire for city living, while one in every seven buyers must buy somewhere smaller in order to achieve their homeowning dream.
Many are prepared to sacrifice 'luxuries' such as a garage, extra bedroom, nursery or garden. For many, the only option is buy a cheaper property and renovate it, moving to a different part of the UK, taking in a lodger, opting for a shared ownership scheme or buying in a regeneration area to avoid stamp duty.
'First time buyers are finding it increasingly difficult to afford the property they want in the location they want,' confirms Bradford & Bingley's Duncan Pownall. 'Of course, a degree of compromise is often required and first timers need to be flexible. However, due to soaring house prices in recent years many are disillusioned with the type of properties available to them and finding they are having to compromise more and more in order to be able to step onto the property ladder,' he explains.
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But the most shocking figures from the report show that first time buyers are failing to exploit their bargaining power. A third of recent purchasers admitted not negotiating anything off the asking price. A further 15% saying they don't plan to negotiate when they come to buy.
Duncan Pownall admits that it was not always possible for purchasers to negotiate when the property market was at its most buoyant, but says now the market is softening there is less excuse: 'With the ability to move quickly and easily first time buyers are in a really strong position so it's crucial they take advantage of it. Driving a harder bargain may help them get closer to the home they want.' He advises first time buyers to make sure they understand exactly what's involved in the house buying process as early as possible and be aware of the many specialist and flexible mortgages designed to help them. 'Purchasers should really research their local housing market and the loan options available before even looking through property details,' he says. 'It may mean they won't need to compromise on their first home as much as they initially thought.'
Savings struggle
But compromising on chosen property is the not the only hurdle. First-time buyers on average require a record four years and nine months to save a 5% deposit, according to the study by National Savings and Investments (NS&I). The length of time has increased by nine months in the last year as newcomers to the housing market try to keep up with rising property prices. During the last year, the average house price rose 16.5%, leaving most first time buyers to find an additional £1,000 for the deposit required. Meanwhile salaries rose just 0.5%.
An NS&I poll of 1,476 people from March to May found 48% save monthly, down from 55% in the third quarter of 2004. The research reveals that the average saver puts away £159.26 a month towards the deposit on their first home. But NS&I found that between the last quarter of 2004 and the first of 2005, the time needed for a deposit had stagnated in London, the South East and South West as the property market in these regions peaked.
Despite the ongoing pressures, the future is set to be rather more rosy. Chancellor Gordon Brown has unveiled a part-ownership property plan designed to help people but their own home. More than 100,000 people could get onto the property ladder in the next five years using the scheme which means buyers would have to raise as little as half the cost of homes sold on the open market. The remaining equity in the house would be shared by the government and the bank or building society. 'The idea is that building societies, mortgage lenders, the government and the prospective owner share the cost of the mortgage, with perhaps 75% held by the prospective owner,' said Mr Brown. He added that the thought the scheme could help two million more people to own homes and admitted that first time buyers need help getting onto the housing ladder.
The Treasury said a pilot scheme was already in place for existing properties, but the new programme would apply to newly-built homes. The buyer would retain the right to sell the house or flat whenever they wanted. The financial benefits of the new scheme look set to attract a lot of interest - average monthly repayments on a £200,000 home could be cut by up to £372 a month. But mortgage lenders are expected to sift out 'deserving' applicants whose salaries simply will not stretch to the average-priced house, from those simply angling to buy dream homes well above their means.
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