Tenants unable to afford that first step onto the property ladder have been rocked by news that rental costs may rise sharply in the next two years.
With the skyrocketing cost of living already stretching many household budgets, this additional strain could leave many in a situation where they can’t afford to buy, and can’t afford to rent either.
Cheaper houses, dearer mortgages
Many prospective first time buyers (FTBs) were heartened by news that house prices were finally beginning to recede, following years of astronomical growth that had priced many FTBs out of the market altogether.
In April, two of the UK’s largest mortgage lenders, Halifax and Nationwide, confirmed that house prices had recorded their first annual drop since 1996, with properties costing 1% less than they did 12 months prior.
But this minor dip in prices has meant little to prospective FTBs, as it has come against the backdrop of a credit crunch, which is causing many lenders to not only charge higher mortgage rates, but demand far larger deposits as well.
While 100% loan to values (LTVs) were common place a year ago, these have now completely disappeared and 95% LTVs are rapidly following suit, leaving a 10% deposit as the new minimum requirement at many lenders.
A practical illustration
Let’s assume someone is looking to buy a house worth £150,000.
The value of this house has fallen 2% in recent months, meaning the asking price is now £147,000 - a saving of £3,000. But whereas the buyer would have had to stump up a £7,500 for a 5% deposit before, now he/she will need to find £14,700 (10% of £147,000).
So the prospective buyer is actually further from affording a house than before, forcing him/her to remain in a rental property.
Now, with rising rental costs eating further into their budget - some London properties have already shot up by as much as 50% - the ‘buyer’ is not only seeing his/her dream of owning a place drifting further away, but they are facing an uphill struggle to remain where they are.
A more perfect example of ‘a rock and a hard place’ you will not find.
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