As interest rates have fallen to a historical low, the number of first time buyers has risen significantly, from 192,300 in 2008 to 312,500 in 2015. However, experts warn that first time buyers have never had to cope with rising interest rates and may struggle with even the smallest increase.
According to a study completed by Aviva, around 1.5 million first time buyers have never known interest rates to rise. As the Bank of England base rate has remained static, mortgage interest rates have fallen rapidly, with some of the lowest deals available. This has caused house prices to increase in many areas of the UK.
Around 20% of a first time buyer’s income was spent on a mortgage in 2010, while this figure has fallen slightly to 18.5% in 2015. However, fixed rate mortgage deals have almost halved, from 4.5% to 2.7%, according to figures from the Council of Mortgage Lenders.
Analysts state that first time buyers with a deposit have been helped by the low mortgage deals available, although an interest rate increase could mean that more of their income has to be sacrificed.
The managing director of Private Finance, Simon Checkley, says that most lenders would conduct strict affordability checks on those with a small deposit, to make sure they could cope with an increase of up to 7%. However, if house prices fall or remain the same, it could be harder to re-mortgage and obtain a low fixed rate deal.
CeMAP trained mortgage advisers have the necessary knowledge of lenders’ criteria and can help find a suitable product for most situations.
