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February 2009

First-time buyers 'still priced out'

Lenders' restrictions making it easier to rent than to buy despite price drops

A FAIRER deal on mortgage rates would bring 95 per cent of the country within the reach of first-time buyers, it has been claimed.

Despite house prices having fallen 16 per cent over the last 12 months, it is still cheaper for a first-time buyer to rent a home rather than buy one in most parts of Britain, according to the latest research from property portal Propertyfinder.com.

But it is high mortgage rates levied on first-time buyers which are to blame, not high house prices, say Propertyfinder.

By analysing sales prices and rents of 110,000 two-bedroom properties currently on the market, the research compared the cost of renting and buying around the UK.

If first-time buyers were able to access the best borrowing rates in the market, which the banks are restricting to those with 40 per cent deposits, it would be cheaper to buy a two-bedroom home rather than rent one in 95 per cent of districts in the country.

Nicholas Leeming, director of Propertyfinder.com said: “First-time buyers are the bedrock of the housing market. Without them, the whole system seizes up.

“Lenders are squeezing the life out of the housing market with the extortionate mortgage rates they are demanding from those wanting to get on the ladder.

“Thousands are champing at the bit to take advantage of lower house prices, but simply can’t get a mortgage. It’s no wonder first-time buyers are now an endangered species.

“By refusing to lend on fair terms the banks are risking their own future too.

“Our research shows how a shortage of mortgage funding is pushing prices down by pricing buyers out of a good value market.

“This puts greater stress on bank balance sheets as their collateral falls in value and makes them even less eager to lend. The banks must break the vicious circle.

“Fortunately, there are lots of good rental property available. Those wanting to buy their first home should look to rent until sanity returns to the bank boardrooms.

“Short-term lets are a good idea. But first-time buyers must be vigilant and be poised to jump into the market if mortgage rates come down. In the meantime, they should save hard for a deposit.”

Around the UK, Hounslow is the best value place for a first-time buyer to buy a two-bed home. It currently costs £518 per month more to rent such a property compared to the cost of buying one.By contrast, it’s much cheaper to rent in some of Britain’s beauty spots than it is to buy. In Devon, Cornwall, the Lake District and rural Wales there are big savings to be had by renting a home.