First-time buyers face further pressures

First-time buyers feel torn between saving for a deposit and risking prices rising out of their reach, or taking out a 100% mortgage and facing negative equity if prices fall, a survey said today. According to the report, published by Yorkshire Bank, 40% of people faces this dilemma when deciding to buy their first home.

The research showed that more than a third of first-time buyers said they had given up hope of being able to buy their own home for at least a year.

Buyers are dropping their standards in order to get a foot on the property ladder. Half of those looking to buy said they would be prepared to buy a property they did not like, in an area they did not want to live in, while many were buying a smaller home than they would like.

The research found that 41% of people would buy somewhere they did not like, while 36% were prepared to compromise by living in an area they had not previously considered and more than 20% said they would pay over the asking price to secure a property.

Over a third of people looking to buy their first home also said they would buy a small property just to get on to the housing ladder, but would move on to a bigger one as soon as they could afford to.

Gary Lumby, head of personal finance services at Yorkshire Bank, said: "With 12% of homeowners still planning on moving over the next year, and all chasing a vastly under-stocked property market, first-time buyers are still facing the same predicament - do they give up in despair or compound the situation by carrying on regardless?"

Meanwhile, figures released today by the Council of Mortgage Lenders showed the amount borrowed for mortgages in March had risen by 19.5% from ?20.5bn to ?24bn, an increase of 25% over the last year.

Flying in the face of fears of a crash, lending for house purchases saw the highest increase. ?11.3bn was borrowed to buy properties, up 24% on the previous month's figure and 41% more than was borrowed in March 2003. Almost a third of mortgage borrowers were buying their first property.

CML director Michael Coogan said the lack of consensus over the direction of the property market, with debate raging over whether prices would crash and interest rates would rise, was making life difficult for homebuyers.

Nearly three-quarters of borrowers opted for variable-rate mortgages, which would see monthly payments increase in the event of an interest hike, while only a quarter chose a fixed-rate deal.

Yorkshire Bank's survey echoed those figures. According to its report, 26% of all homebuyers said they would now take out a fixed-rate mortgage, rising to 34% among first-time buyers.

The CML asked borrowers to be realistic when choosing a mortgage. "The reality is there is no consensus of the market - or about how far interest rates may rise. So it is currently very difficulty for people to make their borrowing decisions. In these circumstances we would urge borrowers to think carefully about how they would cope with higher interest rates," a spokesperson said.

"Given the plethora of hints and warnings about the likelihood of rate rises to come, it is perhaps surprising that more borrowers are not latching onto fixed-rate deals now. It seems that interest rates so far have had little impact on consumer behaviour."

Yorkshire Bank's Mr Lumby commented: "Interest rate rises may have failed to slow the market so far, but house buyers already on the ladder are heeding the warning about over-stretching themselves."