Buyers urged to climb first rungs of property ladder while they can

Lenders last week reported a rise of a third in the number of first-time buyers taking out mortgages in the three months to the end of June, compared with the same period last year. The Council of Mortgage Lenders said the 6,500 first-time buyer loans given in the second quarter was a five-year high.

But would-be buyers who have waited patiently for conditions to improve may find the moment has come to make their move, amid fears of a spike in house prices that may once again freeze them out.

The recent improvement is due primarily by the funding to lending scheme (FLS). By giving lenders access to cheaper finance, the FLS, introduced in August 2012, has pushed down mortgage costs and encouraged lenders to relax their criteria (albeit while cutting savings rates).

Mark Dyason, director at Edinburgh Mortgage Advice, said: “This means accessibility is far greater and the message is getting through – no longer do first-time buyers think they need a 25 per cent deposit only to be declined. Thankfully those dark days seem to be behind us.”

Clydesdale Bank last week launched its “low start” mortgage, a three-year interest-only deal with low initial payments that soar at the end of the term, when it becomes a standard variable rate mortgage.

And HSBC tomorrow introduces its “first for first-time buyers” deal, offering what will start off as the cheapest mortgages available for those with deposits of just 10 per cent to put down. However, the new products, which include fixed-rate loans and trackers across two- and five-years, come with fees of £999 (for HSBC current account customers) or £1,499.

The Scottish Government’s low-cost initiative for first-time buyers, Lift (which features shared equity schemes), has helped revive the market in Scotland, according to Ian McGrail, director of Scottish advice firm First Mortgage.

“Schemes such as Lift and the FLS have had a huge part to play. Equity share schemes are helping to minimise the burden of saving for a deposit which has always been the biggest challenge for first time homeowners.”

Further support for first-time buyers is on the horizon in the shape of the Scottish version of the UK government’s help-to-buy scheme, due to launch in the autumn. It was revealed last week that the initiative – in which low deposit lending will be underwritten by state guarantees – will apply to homes worth up to £400,000 in Scotland, £200,000 lower than the threshold south of the Border.

However, there are fears that the scheme, when added to the effect of the FLS, could create a new price bubble.

The Fitch ratings agency, business secretary Vince Cable and consultancy Capital Economics have all warned in that help-to-buy risks pushing house prices back up to unsustainable levels. Those risks are exacerbated by a shortage of affordable homes. Scottish housing completions slumped by 25 per cent in the last quarter and new starts hit an all-time low, according to statistics published last week.

The Intermediary Mortgage Lenders Association (IMLA) is the latest organisation to suggest that property prices could rocket unless housebuilding levels pick up to meet demand.

Peter Williams, executive director of the IMLA, said: “If house prices continue to rise for the duration of the scheme, then in essence we will be giving with one hand and taking away with the other.”

Six in ten of its members – including subsidiaries of some of the UK’s biggest lenders –said the success of help-to-buy would be undermined by price increases. While first-time buyers will benefit from help-to-buy they will also be hardest hit by a rebound in prices, IMLA members warned.

Dyason said: “The potential pitfalls are falling new build stocks while we have an increasing population, the potential end of the FLS before wholesale markets and bank balance sheets can deliver that volume and the unknown impact of help to buy in Scotland.”

That means first-time buyers waiting for their chance to get on the ladder should take their chance sooner rather than later, said McGrail.

“These schemes are only designed to be temporary measures to boost housing market activity so we are advising first time buyers to take full advantage of them while they last.

“With house building still not as high as it should be, competition remains fierce so it is important to get your foot on the ladder while the market remains favourable.”