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Thursday, 19 September, 2002, 07:11 GMT 08:11 UK
The trials of a first-time house buyer
Money clinic first-time buyer

BBC News Online follows a young couple's struggle to buy a home and asks a property expert for advice on how they should proceed
Christine Knight, 22, and partner Tom Hart, 26, like millions of British couples are struggling to clamber onto the property ladder.

They have been renting a flat in Leicester at a cost of £300 a month. Money they regard as wasted.

Peer group pressure and fear of missing out on the property boom is at the root of Christine and Tom's desire to buy.

"We watched our friends buy homes and see them double in value in less than three years," Christine told BBC News Online.

Job uncertainties

Ideally Christine and Tom say they would have bought last year.

Tom Hart and Christine Knight
Tom Hart and Christine Knight

But uncertainties over Christine's job - she is a graphic designer and Tom is an architect - meant that they had to postpone house hunting for a while.

At that time they had set themselves a budget of £65,000-85,000.

Unfortunately in the time it took for Christine to secure regular employment the property market goalposts had shifted.

Christine and Tom were now looking at properties priced near the £100,000 mark.

"If my job situation had have been better six months ago we probably would have been able to get a house for a lot less," admits Christine.

"I do think that the house price situation is getting out of control."

We have already decided that we will not be able to get married for a long time yet due to buying a house at such inflated prices

Christine Knight

As a result, the couple face having to take on more debt or find a larger deposit.

Despite a combined salary of £36,000 they say finding a larger deposit is a problem as whenever they save-up what they think is enough, property prices have risen again.

Debt burden

What is more, both Christine and Tom are creaking under a debt hangover from University. Between them they owe the Student Loan Company £15,000.

With a deposit seemingly out of reach, the couple are considering a 100% mortgage.

However, they are afraid that a 100% mortgage will be costly and leave them too exposed if the property market takes a turn for the worse.

Marriage plans shelved

But the draw of becoming a homeowner is strong for Christine and Tom. They are even willing to postpone marriage plans.

"We have already decided that we will not be able to get married for a long time yet due to buying a house at such inflated prices," Christine said.

This is the advice our expert, Ray Boulger of mortgage advisers Charcol, offered Christine and Tom

Many couples are in the same boat as Christine and Tom.

In some areas prices are accelerating away from first-time buyers, as a result they are borrowing more and arranging 100% mortgages.

The danger for these people is that interest rates will rise and property prices fall leaving 100% borrowers in negative equity.

Having a deposit is often best as it acts as a buffer against price falls.

However, on the other hand, both Christine and Tom seem happy with their job security.

Fixed mortgage

But I would recommend that as a first time buyer they took out a fixed rate mortgage - for at least two years - that way they can budget properly and will not be at the mercy of Bank of England base rate moves.

All in all, a 100% mortgage may be the only option if they want to get on the property ladder quickly.

Ray Boulger of mortgage advisers Charcol

In addition, the borrowing multiple - about 2.5-3 times income - isn't excessively high, not when compared to the 4-5 times income mortgages that some first-time buyers are taking out.

As for the student loan debt I don't think Tom or Christine need lose much sleep, at a 2% rate of interest it is a very cheap debt.

Tread carefully

All in all, a 100% mortgage may be the only option if they want to get on the property ladder quickly.

But they have to be careful that they don't get forced by a mortgage lender into accepting an uncompetitive rate of interest or stung by having to pay for expensive loan insurance.

Fortunately, 100% mortgages aren't as expensive as they once were.

There are many competitive deals on the market and all in all Christine and Tom would be best going for one of these.

This is what Christine and Tom did

They managed to find the right house for £83,000 - well within their price range.

The couple chose a 100% mortgage but not a fixed interest rate arrangement.

I have a brother and sister in Hertfordshire who can't afford to buy a flat never mind a house.

Christine Knight

However, the mortgage rate is guaranteed to be no higher than 1% below the Bank of England base rate.

This arrangement will last for two years, then the couple's mortgage will move onto the bank's standard variable rate.

Rock bottom survey

What appealed to the cost-conscious couple was that the mortgage provider promised to carry out a property survey for a nominal £1 fee - potentially saving the couple several hundred pounds.

Buying a house will stretch the couple finances in the short term and marriage may not be affordable, they still feel better placed than many.

"I have a brother and sister in Hertfordshire who can't afford to buy a flat never mind a house, with bed-sits selling there for the same price of a three bed house in Leicester," said Christine.

Your Comments

I'm currently renting a one bedroom flat with my partner for £450 a month and can see us staying there for some time. I had seen a couple of properties a few years ago before prices shot through the roof, I just about had enough money behind me for a deposit although my wages would not have got me the place I wanted. A few months later I had a decent pay rise from work and then the property market went crazy. I consider myself to be on a decent wage, I put a certain amount of money away each month towards a deposit but now it's not enough. Every time I look at property prices now they've jumped another £5000-6000 every couple of months. What chance do us first time buyers have? Now I'm just biding my time until this ridiculous situation comes to a head, bring on the bust!
Simon Clout, Brighton, UK

Well, its a shame they have already gone ahead, since my advice would be to have forgot about buying a house right now...wait for the inevitable crash that IS going to happen, sooner rather than later.
Christopher Cook, UK

I would love to move out of home but I would have to move 20-30 miles away to find an affordable area. At 21 I don¿t have enough experience to work in a high powered and I cant afford a flat on my current wage. The best I could do round here is a single room but I don't see any point as I have got that at home. Its a vicious circle and the kind of thing that will drive the country into the ground
Chris Ashbey, Staines

The current shortage of homes is making it a nightmare for young first time buyers such as myself. We are faced with either paying way over the odds to get onto the housing ladder or wasting our money on rent.
Chris, UK

Isn't it cool that people as young as this can afford to buy, never mind dream of buying, their own home while maintaining a decent standard of living.
Leslie, UK

The housing market is utterly ridiculous, as is the reporting which relies on biased reports from self interested government agencies and mortgage lenders. Everything is set against the first time buyer and only now are the very real social problems (lower birth rate, emigration of key workers, mugging etc.) resulting from this situation being considered. These will cause untold misery for an entire generation of young people, not that the 'fat cat' thirty some things care a jot having made substantial capital gains over the last few years. On top of these unpleasant realities, the 'homeless generation' are threatened with death by boredom at numerous dinner parties given by smug homeowners!
James, UK

I can relate to the couple's plight, I bought my starter home in St Albans last year and have seen the prices of similar properties escalate to mammoth proportions. I'm worried that the next rung of the ladder may be out of reach for while to come as doing on your own means more pressure on your finances. Its really got to level out soon!
Rebecca Cole, England

Would it not ease the property market a little if a total ban was introduced on people owning more than one home. While this may seem to infringe on the personal liberty of those who can afford to buy two or more homes, it would increase the liberty of those who can, at present, no longer afford to buy one.
Bill Wakefield, England

The frenzy of people clamouring to buy houses at a point when they've hit market highs reminds me of a similar situation on the NASDAQ a few years ago. Needless to say the stock market eventually corrected itself and the housing market will too, that much is certain.
Alistair McNally, U.K

Why the obsession with owning a house? Rents have been falling in much of the country recently so that it is now cheaper to rent, and this is no more money down the drain than interest on a mortgage is. Many continentals are happy to rent all their lives.
Nick, London, UK

The housing market, like all other markets, is simply reacting to the forces of supply and demand. Thirty years ago the "social norm" was to live with your parents, get married early and then buy your house. Now people are getting married later, but want to move out from their parents and get a place of their own. This social change is increasing the demand for first-time buyer properties, although it is not helped by people jumping onto the "buy-to-let" bandwagon, but this particular phenomenon looks as though it may be coming to an end. The answer, if there is one, is to either reduce demand, or increase supply, neither of which is likely in the short term.
Pete, UK

I am glad that Christine and Tom are finally able to buy somewhere. Unfortunately I, as a single woman now raising a young niece is unlikely to be able to afford anything in London on my salary of £21,000. What are people like me supposed to do?
Sonia, UK

The property market is well and truly out of control, and it seems that lenders are all too happy to lend beyond buyers means in the short term with little consideration for what would happen to them if interest rates were to rise. I understand exactly how Christine and Tom feel.
Andrew, UK

My partner and I are first time buyers, in March this year we offered £92,000 (the full asking price) for a 2 bed mid terrace house in Harlow Essex. When the chain fell down in August the same property went back on the market for £115,000 - an increase of £23,000 in 4 months. We now need to earn £46,000 between us to be able to get a mortgage to buy a very modest house in a very average town. How can people save for a house when prices are increasing by £6,000 per month.
James, UK

The current housing boom is typical of the dot com era. It's stoked up by the mortgage lenders (the more money they lend, the more interest payments they receive), the Bank of England (unwilling to stem house price inflation) and the government for failing to invest in social housing and planning. What comes up, does come down! It has done for the last 30 years and will do again.
David, UK

I think some people are unrealistic about property. It's hard work to get on the property ladder - and sometimes small risks are necessary. We live in London and couldn't afford a deposit, so we borrowed over 100% on a property two years go and never looked back.
Michael, UK

See also:

17 Sep 02 | Business
14 Aug 02 | Business
30 Aug 02 | Business
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