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Due to the recent events in the housing market, coupled with the difficulties faced by banks and building societies in their ability to offer new loans and mortgages on property purchase, potential first time buyers who may be looking to get their foot on the first rung of the property ladder have been advised to wait until things settle down before they commit themselves to purchasing.

The advice comes from the advisory service Firstrung. The recommendation provided by their operations director, Paul Holmes, is for first time buyers to sit it out until house prices have fallen further and they will be able to purchase more for their money.

At the moment property prices are still particularly high and many potential first time buyers are in the position of not being able to obtain a loan or mortgage for the required amount, due to not having sufficient income to justify the affordability of the loan. To make this situation worse, many banks and building societies are restricting their lending criteria when it comes to the income multiples they are prepared to offer on a home loan and also require a larger deposit to be paid by the borrower.

House prices have dropped consistently for the past eight months and most experts predict that they will continue to do so for several months to come. By waiting for further price reductions, someone buying for the first time is likely to be able to get their first home cheaper and in the meantime they have the opportunity to save up and put down a larger deposit, thereby giving themselves a better chance of being accepted for a loan or mortgage.

Of course, this is a double edged sword, first time buyers need property prices to fall in order to be able to become established on the property ladder, but at the same time however, the housing market needs first time buyers to be entering the market, due to the fact that without them, nobody else is able to move house and the property market will stagnate, causing prices to drop further still.

It was reported last week that a huge number of UK home owners are facing problems due to the fact that their cheap fixed rate mortgage deal was about to end and that they were unable either to afford the revised monthly loan repayments, or to be able to find a suitably cheap loan to replace their existing mortgage.

This mostly applies to those borrowers who took out a two or three year fixed rate mortgage at low rates, without thinking about the consequences of what would happen when the deal ended. Most people assumed that they would simply be able to remortgage to a new, equally cheap loan, a belief fuelled by a large number of lenders and mortgage brokers who “coincidentally” receive a commission from the lender every time their client re-mortgages!

New research from the Abbey has now shown that borrowers, thankfully, are waking up to the fact that short term fixed rate loan and mortgage deals are not actually as good as they initially thought they were, particularly in view of the current economic climate and more borrowers are opting for much longer term deals in order to try and get beyond the credit crunch. Of those surveyed, 27 per cent said that they would prefer the option of a five year fixed rate and a further 11 per cent said they would go for a fixed rate term of ten or even fifteen years.

Although a fixed rate mortgage provides the security of knowing how much you will be paying on your loan, they do tend to be quite expensive, particularly at the moment and whilst they are great if interest rates increase, over a longer term if rates drop, a borrower could find themselves paying over the odds for their loan with the prospect of a large redemption penalty if they try to move their deal.

Perhaps a better option would be to borrow a sensible amount that you can actually afford and then take out a flexible tracker mortgage for the lifetime of the loan, which would be affordable now, but would also remain affordable in ten, fifteen or twenty years time, with flexible payments in the meantime and no penalties…just a thought!

The effects of the credit crunch have become clear for all to see in recent months, particularly in the housing market sector, with building firms, estate agents and banks and building societies all suffering the consequences and finding business extremely difficult, with many being forced to make redundancies.

The lending market is also suffering, as many loan and mortgage providers are closing their doors to new business, or at the very least tightening their lending criteria, making it more difficult for an individual to obtain any type of personal loan.

These factors, coupled with rising costs of living, are having a knock on effect on other businesses throughout the UK economy and the stark warning has come from both businesses and also the British Chamber of Commerce that Britain is facing the prospect of a technical recession. 

The word “recession” strikes fear into the hearts of many, particularly those who remember the early nineties, which was the most recent recession in the UK. But the actual definition of a recession is “two consecutive quarters of negative economic growth.” This means that we won’t actually know that we are in a recession until it has already happened.

Of course, many individuals are now drawing comparisons between where we are now and the recession of the early nineties, when the UK saw five consecutive quarters of negative growth, interest rates on loans and mortgages were extremely high as was the rate of inflation, house prices dropped much further than they have done currently and unemployment was much higher than it is today.

We are in a much stronger position now than we were eighteen years ago, with low interest rates on loans, much lower inflation and unemployment rates (although we are likely to see both of these rise to some degree) and still a shortage of housing to meet the needs of a growing population.

Yes, we are almost certainly in for a rough ride in the near future, possibly for another twelve months or even more, but although a technical recession looks likely it is not a definite outcome. The economic adviser at the British Chamber of Commerce said “A major recession can still be avoided, but forceful measures are needed to improve confidence.”

He also called on the Monetary Policy Committee within the Bank of England to cut the base rate of interest to help restore confidence and ease the pressure on both businesses and individuals.

It has been a tough time so far this year for many families and home owners as far as their finances are concerned, particularly for those with loans and mortgages.

It has been increasingly difficult to obtain any new type of credit over the past few months and with the economy slowing down and the cost of living going through the roof, many individuals are finding that their regular take home pay is being stretched to the limit and for some this has reached breaking point, with increasing numbers of arrears and defaults arising on borrowers personal loans and mortgages.

Now the Government has announced a plan to try and help those individuals who are finding difficulty with their finances at the present time. The Financial Capability Action Plan is intended to provide a free advice service and assistance to help people manage their finances in a better way and equip them to cope with the increasing cost of food, fuel and debts and is being developed alongside the Financial Services Authority’s (FSA’s) plan to keep people better informed and become more confident and knowledgeable with regard to money matters, loans, credit cards and other debts.

The main feature of the plan will be to develop an all-encompassing money advisory website, which will be based on the FSA’s moneymadeclear site and will provide information on a range of topics from advice on loans and mortgages, to debt counselling and advice on utility bills and a first time home buyer advice service. The action plan will be developed over the summer, with additional services such as budgeting and money management advice becoming available next year. There will also be a focus on schools, with basic money matters and financial education being taught to children and young people.

This is clearly good news for the future of the nation’s financial well-being, as anything which offers help and advice to those who may be facing financial difficulties has to be welcomed. However, for many borrowers who are currently struggling to keep up with their loan, credit card and mortgage repayments and may already be in arrears or have defaulted on their debts, as is often the case in these situations, the help may have arrived too late.

There has been a huge drop in the amount of money which is being raised by home owners through housing equity withdrawal (HEW) loans since the beginning of this year according to a report from the Bank of England.

The Bank estimated at the end of last year that the level of money raised through HEW loans would be somewhere in the region of £7.4 billion for the first quarter of 2008, however the actual amount borrowed was only £5.04 billion, £2.3 billion lower than the Banks estimate.

Housing equity withdrawal is the process by which homeowners are able to release equity from their properties via a loan or remortgage, which is not then reinvested into the property market, either in the form of home improvements or use as a deposit for an additional property purchase. Instead of this, the money raised through the loan is used elsewhere, such as debt consolidation or to help fund consumer spending.

This method of raising capital has been extremely popular over the last few years, as property prices have increased dramatically over this period, providing home owners with a large amount of equity in their homes, which many have been tempted to release in order to fund things like a new car, or holiday, rather than taking out a conventional personal loan.

The large drop in this type of equity release shows that consumers are eventually waking up to the fact that house prices are dropping and the equity they had built up over the years is being eroded.

Another factor which is likely to affect HEW is the major banks’ unwillingness to grant loans of this nature, as the funds are not being reinvested into the property. At least with a conventional secured loan, the money is being used to increase the value of the property in question.

To put these lending figures into perspective, the Bank of England data shows that over the same period last year £13.89 billion was raised through HEW and the total for last year alone was in excess of £42 billion.