With recent reports showing that average house prices in the London area have already breached the £300,000 barrier, Andrew Frankish, managing director at Mortgage Talk offered his views on a difficult market for first-time buyers.
“Almost daily, we see reports and surveys indicating that first-time buyers are being priced out of the market, houses are now overvalued and that a price crash may be just around the corner. Of course, many of these reports have to be taken with a pinch of salt, but some do contain a nugget of truth.
“For example, recent modest interest rate rises are having some effect, and we actually welcome some heat being taken out of the market, as this will help stabilise prices and hopefully make things more comfortable for first-time buyers.
“In the meantime, the key factor for market liquidity is affordability. Rather than industry pundits and commentators focusing on income multiples, it's time that we recognised that this is now an outmoded model. Instead, the spotlight ought to be on what the borrower can afford, as a proportion of their income.
“This means that other commitments, such as car loans and the like need to be taken into direct consideration, so banks and building societies can assess lending levels sensibly and, equally, borrowers can get a grip on exactly what sum they can afford to borrow, before committing themselves to a purchase.
“Moreover, although many reports indicate that first time buyers are waiting on the sidelines to see what happens to prices, supply and demand demonstrates that there will be no crash in the property market. As such, it's tempting for first time buyers to buy now, and fix their mortgage repayments at an affordable interest rate, rather than waiting to see if rates go up again, taking their first purchase even further out of reach.”
