Should my son think twice about buying his first home in the current climate?

Q My 21-year-old son has a ?9,000 deposit for the purchase of a ?70,000, one-bedroom house in the north-west. He has arranged a ?61,000 mortgage, fixed at 4.99% for two years. During that time, he will be earning about ?20,000 (plus extra for overtime).

We are both now concerned (due to media reports) that a combination of house price falls and interest rate rises may turn this venture into a financial disaster. What is your view of the risks for first-time buyers, such as my son, as things stand at the moment?

DP

A The recent increases in interest rates have sent a shiver down the spines of homeowners all over the country - particularly those who bought to let. One reason for the rate rise is undoubtedly to try to slow the house price spiral, so it is possible, of course, that it may result in the long-awaited decline in property values.

However, your son's fixed rate mortgage will protect him from any further rate hikes for the next two years, by which time the market may have settled down. And in the long-term, the majority of experts are not expecting a sustained collapse in house prices.

Buying property to live in differs from other investments, in that its prime purpose is accommodation - so unless your son is forced to move any temporary drop in the capital value should not be a disaster. Buying at the top of the market is always a bit risky, but it could well turn out to be a good long-term investment.