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Ted D. Bear

Sharp Rate Rises For First-time Buyers

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FT report

Borrowing rates for first-time homebuyers rose sharply in August as lenders punished buyers with small deposits, according to new data from the Bank of England.

The figures are the first comprehensive assessment of the mortgage market since the credit squeeze started. They showed that, across almost all the different types of mortgage, average quoted rates increased most for those borrowing 95 per cent of a property’s value – the level most common for first-time buyers.

Rate rises were more modest for mortgages with a lower loan-to-value ratio, which are more likely to be taken out by existing homeowners.

So it seems that FTBs will be the first to suffer. I think it is quite feasible that the credit crunch and any subsequent crash will prove of little help to those FTBs without a very large deposit. Indeed, since BTLs are able to put down large deposits it is likely they will be in an even better position to profit from any weakness in prices. We are already seeing reports of BTL activity increasing, and rents increasing, so while the crash may be on it will not be the great leveller FTBs hope it will be, it will further entrench the current inequalities. STRs will of course be OK, and many I imagine will be eager to join the legions of BTLs in the event of any price falls. FTBs with 20%+ deposits might be in luck too.

What most FTBs really need is a reform of AST - buying isn't going to get any easier soon.

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FT report

So it seems that FTBs will be the first to suffer. I think it is quite feasible that the credit crunch and any subsequent crash will prove of little help to those FTBs without a very large deposit. Indeed, since BTLs are able to put down large deposits it is likely they will be in an even better position to profit from any weakness in prices. We are already seeing reports of BTL activity increasing, and rents increasing, so while the crash may be on it will not be the great leveller FTBs hope it will be, it will further entrench the current inequalities. STRs will of course be OK, and many I imagine will be eager to join the legions of BTLs in the event of any price falls. FTBs with 20%+ deposits might be in luck too.

What most FTBs really need is a reform of AST - buying isn't going to get any easier soon.

This seems highly unfair imo and I could not agree more with the remainder of your post as I have said on various threads this morning.

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FT report

So it seems that FTBs will be the first to suffer. I think it is quite feasible that the credit crunch and any subsequent crash will prove of little help to those FTBs without a very large deposit. Indeed, since BTLs are able to put down large deposits it is likely they will be in an even better position to profit from any weakness in prices. We are already seeing reports of BTL activity increasing, and rents increasing, so while the crash may be on it will not be the great leveller FTBs hope it will be, it will further entrench the current inequalities. STRs will of course be OK, and many I imagine will be eager to join the legions of BTLs in the event of any price falls. FTBs with 20%+ deposits might be in luck too.

What most FTBs really need is a reform of AST - buying isn't going to get any easier soon.

How is the Buy to Let market doing in the States? If you had money to invest, if you could leverage your existing equity now to buy another property - would you buy one in the States?

Once the market is reported as falling here, BTLetters will desert. They may or may not sell their existing holdings, but they sure as hell are not going to borrow money to buy into a falling market.

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As the large deposits BTLers put down are from MEWing their existing properties, they will find it harder to get the money than first time buyers when/if house prices stagnate/fall.

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This seems highly unfair imo and I could not agree more with the remainder of your post as I have said on various threads this morning.

Banks and building societies are now extremely risk adverse.

FTBs asking for 95% mortgages at the (potential) top of the market are high-risk customers by almost any definition.

These people are extremely vulnerable in the current enviroment, and IMHO the banks are doing them a favour by trying to price them out of the market.

Believe it or not, the lenders do not want to have to repossess the houses of FTBs in 6 months time, ESPECIALLY if house prices are falling or even static.

It's credit crunch time. A return to standard lending practices after a period of excess credit. I'm not too sure what fair or unfair has to do with it. It's just business.

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Banks and building societies are now extremely risk adverse.

FTBs asking for 95% mortgages at the (potential) top of the market are high-risk customers by almost any definition.

These people are extremely vulnerable in the current enviroment, and IMHO the banks are doing them a favour by trying to price them out of the market.

Believe it or not, the lenders do not want to have to repossess the houses of FTBs in 6 months time, ESPECIALLY if house prices are falling or even static.

It's credit crunch time. A return to standard lending practices after a period of excess credit. I'm not too sure what fair or unfair has to do with it. It's just business.

Exactly - assuming current prices are indeed unsustainable, and the current risk-averse credit environment is set to continue for a while, lending to those with no deposit benefits neither the lender nor the borrower.

The banks only wouldn't be doing them a favour if HPI was likely to continue and mortgage rates were likely to remain low.

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FT report

So it seems that FTBs will be the first to suffer. I think it is quite feasible that the credit crunch and any subsequent crash will prove of little help to those FTBs without a very large deposit. Indeed, since BTLs are able to put down large deposits it is likely they will be in an even better position to profit from any weakness in prices. We are already seeing reports of BTL activity increasing, and rents increasing, so while the crash may be on it will not be the great leveller FTBs hope it will be, it will further entrench the current inequalities. STRs will of course be OK, and many I imagine will be eager to join the legions of BTLs in the event of any price falls. FTBs with 20%+ deposits might be in luck too.

What most FTBs really need is a reform of AST - buying isn't going to get any easier soon.

we debated this on a thread a day or so back and it is happening before my eyes. Meek inherit the earth? No chance, scorched earth unfortunately... :( FTBs are being trashed and 'innocently' caught in the x-fire. For a small percentage a reversion to old school underwriting will work, but for the majority it may prevent them climbing on the fabled first rung even if we have a sensible correction.

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we debated this on a thread a day or so back and it is happening before my eyes. Meek inherit the earth? No chance, scorched earth unfortunately... :( FTBs are being trashed and 'innocently' caught in the x-fire. For a small percentage a reversion to old school underwriting will work, but for the majority it may prevent them climbing on the fabled first rung even if we have a sensible correction.

this might be the case in the early stages of the crunch CL, but I'm with TY above - FTBs should be kept out of the market for the next year or two. Once the first (and heaviest) hammer blows have been dealt to the market, credit conditions will change again - while the market may continue to fall, once the turmoil is through we will hopefully see a return to more "just" (i.e. sane) credit policies - i.e. BTLs, self-cert, IOs etc will be considered v high risk, and OOs (even high LTV FTBs) will be much lower.

Things might seem bleak now, but these are simply the traumas of a market being thrown into reverse while doing 80mph in the fast lane. A new equilibrium will be found at some point, and I reckon FTBs will do OK in the long run (evidence of my own inate bias there! :huh:)

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