Why tight credit could be good for first-time buyers
In a few years, first-time buyers may be heartily grateful to banks for their reluctance to lend them any money now.
It is getting easy to find statistics that tell you the housing market is in trouble. But none is quite as convincing as this one: according to the Financial Services Authority, the proportion of new lending done at a loan-to-value of more than 90% now accounts for just over 2% of the total.
That represents a tiny rise from the first quarter of the year (1.6%), but a massive fall from its levels at the peak of the bubble back in mid 2007. Then, very high loan-to-value lending accounted for more like 15% of total mortgage lending.
This matters. Why? Because it is first-time buyers who take out high loan-to-value mortgages. So these numbers tell us that despite the fact that mortgage lenders are ostensibly loosening up their product ranges, they still aren't lending much to new entrants to the mortgage market. A report from the Council of Mortgage Lenders backed this up earlier in the week: it seems that, while the overall number of new mortgages written rose very slightly in July, the number that went to first time buyers fell by 2%.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
That should come as no great surprise given that the vast majority of mortgages remain reserved for those with a 30-40% deposit and that first time buyers are currently being asked for an average 24% deposit if they want a loan (that's up from 21% back in May, so things aren't exactly improving).
However, miserable as this all sounds, we wonder if, in a few years, would-be first-time buyers won't be heartily grateful to the mortgage providers for their reluctance to lend them any money. The absence of young buyers from the market may be part of the reason it has entered its latest swoon (if there is no last link in a housing chain, there is no chain), but it is far from the only one: richer buyers can't get finance particularly easily anymore either, supply has been rising fast and the spectre of the huge spending cuts to come isn't doing much for employment or confidence.
How much better then for first-time buyers to rent for a few years -a decade even -and to enter the market for their dream home when prices have normalised a little and when they are better able to afford it.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
-
How to invest in nuclear power
We need nuclear power to go green, says Dominic Frisby. But there is a better option than huge power stations
By Dominic Frisby Published
-
Chase slashes its easy-access savings rate – is it time to switch?
The Chase easy-access savings account has proved popular with savers thanks to its competitive rate and bonus deals. But, as the rate has dropped, has it lost its charm?
By Katie Williams Published
-
House prices to crash? Your house may still be making you money, but not for much longer
Opinion If you’re relying on your property to fund your pension, you may have to think again. But, says Merryn Somerset Webb, if house prices start to fall there may be a silver lining.
By Merryn Somerset Webb Published
-
Prepare your portfolio for recession
Opinion A recession is looking increasingly likely. Add in a bear market and soaring inflation, and things are going to get very complicated for investors, says Merryn Somerset Webb.
By Merryn Somerset Webb Published
-
Investing for income? Here are six investment trusts to buy now
Opinion For many savers and investors, income is getting hard to find. But it's not impossible to find, says Merryn Somerset Webb. Here, she picks six investment trusts that are currently yielding more than 4%.
By Merryn Somerset Webb Published
-
Stories are great – but investors should stick to reality
Opinion Everybody loves a story – and investors are no exception. But it’s easy to get carried away, says Merryn Somerset Webb, and forget the underlying truth of the market.
By Merryn Somerset Webb Published
-
Everything is collapsing at once – here’s what to do about it
Opinion Equity and bond markets are crashing, while inflation destroys the value of cash. Merryn Somerset Webb looks at where investors can turn to protect their wealth.
By Merryn Somerset Webb Published
-
Value is starting to emerge in the markets
Opinion If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy traditionally expensive growth stocks on the cheap, too.
By Merryn Somerset Webb Published
-
ESG investing could end up being a classic mistake
Opinion ESG investing has been embraced with enormous speed and zeal. But think long and hard before buying in, says Merryn Somerset Webb.
By Merryn Somerset Webb Published
-
UK house prices will fall – but not for a few years
Opinion UK house prices look out of reach for many. But the truth is that British property is surprisingly affordable, says Merryn Somerset Webb. Prices will fall at some point – but not yet.
By Merryn Somerset Webb Published