Fool looks at the other side of the house price coin
For a while now I’ve been lamenting the problems that first time buyers face in our incredibly expensive property market, however an interesting piece from the Fool has highlighted another side to the coin that I hadn’t previously thought of.
For those first time buyers who are mortgaging their very souls to try to make ends meet for a new property and have a 100% mortgage (or even worse a mortgage of more than 100%) a crash in house prices could leave them in serious trouble.
Let’s say some first time buyers scrape together everything they have to try to get a mortgage of £200,000 on a property that costs just that, maybe even being a touch economical with the truth. Next thing you know, after struggling to pay the mortgage for a few months, house prices crash, immediately plunging them into negative equity.
The Fool’s advice in order to avoid the problem is to select a repayment mortgage (good idea) and overpay as often as they can afford (bad idea). Obviously people with a mortgage of 100% are going to be unlikely to be able to overpay and are likely to be stretched to the limit anyway so the suggestion isn’t very useful.
So what to do? Getting on the housing ladder is a gamble at the moment and a hard one to judge, on the one hand you have this warning and on the other hand you have to remember that people have been predicting a fall in house prices for almost 10 years now, yet we’ve seen growth to the point where getting on the ladder is nearly impossible for many. The only way to provide some breathing room is to try to get together a deposit prior to purchase in any way possible.
Of course, that’s easier said than done.