Mortgage deposits far too high for first time buyers

Buying a house has always been a stressful process, but since the banking crisis more and more people have found themselves unable to get on the housing ladder due to the banks demanding larger deposits and imposing stricter conditions on those whom they do lend money to.

This means that the number of individuals, couples and families who are forced to rent their home because they cannot afford to buy one has been on the increase over the last couple of years. With increased demand, renters are able to charge more for their properties and this has lead to a significant increase in the average monthly rent across the UK.

In fact, in Britain’s 50 largest towns and cities it is only cheaper to rent rather than buy in three places, whereas just one year ago renting was cheaper in 10 locations. Ironically, while those who are refused mortgages are finding themselves spending more money than ever on their rental costs, those who have managed to buy a property are enjoying some of the lowest mortgage rates ever. Following the banking crisis, the interest rate was dropped to 0.5% and has remained there ever since.

Property website Zoopla conducted a study of house prices and monthly rents across the country and found that the only places where renters were better off than property-owners were Plymouth, Bournemouth and Swansea. The town which offers the best value for money for property buyers was Milton Keynes, where renting is almost 40% more expensive than owning your own home.

London is another location where renters are left out of pocket, paying, on average, more than £6,800 a year more than those able to secure a mortgage and buy their own property.

Of course, owning a property does come with extra costs, as renters are not responsible for maintenance and repairs, while mortgage repayments can increase over time in response to changes in the interest rates. As the UK recovers, or if there is a further financial crisis, the Bank of England is likely to increase the interest rate which will have a knock-on effect on those who have mortgages linked to this figure.

There are dozens of different types of mortgage, even within each financial institution. For example, Nationwide customers who signed up for a mortgage with the building society before 2009 are still benefititng from the company’s pledge to stick within 2% of base interest rate, paying just 2.5% at the moment. However, those who have taken out a mortgage since late-2009 are paying an average variable rate of 3.99%.

It is not just the mortgage rate which prospective house-buyers have to worry about either,  as since the banks found themselves in financial trouble because of bad debts, they have been demanding larger and larger deposits from people looking for mortgages, often between 25% and 40% of the house value, and this is pricing many people out of the housing market.