Property ladder still a long way off for first-time buyers

Published on Monday 25 April 2011 20:11

First-time buyers in Scotland still face a long wait to get a foothold on the property ladder despite reports suggesting that homes are becoming more affordable.

Figures show that buying may now be cheaper than renting, but experts say house prices need to fall further before buyers without large deposits can make the move from renting to ownership.

The warning came in response to Bank of Scotland research showing the average monthly cost of buying a three-bed house in Scotland stood at 514 in March, compared with the average monthly rent of 531 for the same size property.

Buying costs across the UK are now 14 per cent lower than renting costs, said Bank of Scotland, a reversal of three years ago when the cost of buying was 59 per cent above the average rent.

The change is due to lower mortgage repayments, while demand from first-time buyers frozen out of the market has sent rental costs soaring.

Suren Thiru, housing economist at Bank of Scotland, said: "Such a marked decline in mortgage costs has improved affordability for those able to enter the market as well as helping to ease the pressure on existing homeowners' disposable income."

But Scottish housing market experts say it will be some time yet before any real improvement in affordability.

With a big enough deposit to secure a competitive mortgage, a first-time buyer's mortgage repayments could feasibly be lower than their rent. But other costs associated with buying would tip that the other way. Since 2009 the average first-time buyer has put down a 27 per cent deposit and while first-timers are exempt from stamp duty on properties below 250,000, they still face other costs. Robert Carroll, managing director of MOV8 Real Estate in Edinburgh, said: "For example, the up-front costs of conveyancing fees and mortgage arrangement fees. Once you've moved in there are further costs to consider such as building insurance and the cost of larger repairs."

The falling price of one and two-bed flats has brought ownership within closer reach of first-time buyers, said Carroll, even though prices have levelled-off in recent months. Yet the biggest obstacle facing buyers - securing a mortgage - remains formidable, he added.

"The Bank of Mum and Dad might help in some cases, but for the majority of first-time buyers the purchase price is less of an issue than getting a mortgage or saving up a large enough deposit.

"Until lenders relax their criteria for first-time buyers, the idea of most renters being able to enjoy the potentially reduced monthly cost of owning a property will remain a pipe dream."

Harry McGeough, director of Mortgageforce in Glasgow, agreed. Some lenders are offering deals aimed at helping first-time buyers bridge the funding gap, he said, but the outlook remains bleak."It very much depends on where prices go and on the affordability mechanisms that lenders use. I cannot see mortgage criteria loosening too much in the short-term, they are still cherrypicking the best clients."

Even if they do begin to lend more freely there's no guarantee that demand for ownership will return to previous levels.

McGeough added. "People are happy to rent for longer. There's less of a stigma to it than there was during the housing market boom when ownership was seen as a status symbol."