Exciting times for first time buyers? Sure, if you can find the cash.

‘The lease is up’. These four words will drive terror into the heart of even the seasoned house renter, especially when there is no option to extend the lease and the only choice is to move. For my sins, I have recently found myself in this exact position – yet again. As I emerged a week later from the well of despair littered with visions of moving vans, inventory clerks and fighting with landlords over the return of deposits, I found myself standing in a perfectly nice two-bedroom conversion while the letting agent relentlessly kept up a running commentary of the state of the property market. Prices in this borough, he informed us earnestly, are falling.

Despite his best efforts to unsubtly suggest that we would be better off giving up the rental game and joining the leagues of the first time buyers, I remain unconvinced. He has a point, prices are falling. Across the UK housing prices have dropped in January for the fourth month in a row according to a report published yesterday by Hometrack, and are showing the lowest growth since June 2006. Combined with December’s drop in interest rates, this sounds like excellent news for first time buyers. But unfortunately, finding a home you can afford is not the only consideration in getting on the property ladder; unless you are sitting on a goldmine, there is also the small matter of getting a mortgage.

Over the past few years, first time buyers have been taking on massive amounts of debt in order to get a foot on the property ladder, and many have taken advantage of 100% mortgage products in order to do so. However, due to the credit crunch, banks are being charged more to borrow from each other - an increase in costs that is being passed onto consumers. As a result banks have become increasingly cautious as to whom they will lend to, and many have brought in stricter lending criteria in order to weed out less desirable mortgage applicants. Unfortunately due to the higher risks involved with lending to first time buyers, many products traditionally aimed at first time buyers have been pulled from the market, in particular mortgages with higher loan to value ratio. Many banks have pulled their 5% deposit mortgage products, and 100% mortgages are few and far between. In order to get a good fixed-rate option, first time buyers will find themselves having to put down a down-payment of between 10-20% of the property value, which may equal a hefty sum of money.

It’s not all bad news - there are still some deals to be found. Cheshire Building Society has some good options available; their 2 year fixed rate and their 2 year discount mortgages may offer affordable borrowing solutions for those with a 5% deposit. Or, if you can swing a 10% deposit, Abbey is offering their 2/3 year fixed products at the attractive low rate of 5.47%. Also worth looking at are guarantor, professional and graduate mortgages.

However, it is worth taking into consideration that buying in a falling market can be just as risky as buying in rising one. While those that choose to stretch themselves to buy in a rising market risk defaulting if interest rates increase, those who buy too soon in a falling market risk negative equity if the value of their property continues to drop after purchase. Above all, if you decide to take the leap and leave the rental market, it is important to compare the whole market and seek independent financial advice in order to find the best deal available for your circumstances. Make sure your advisor has a good knowledge of what’s available and possibly even access to exclusive products.

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