Saving For A Deposit Will Make A Big Difference
Property prices are forecast to fall 7% this year, and possibly 15% over 18 months. This should be good news for first-time buyers. However, they have to find a larger deposit. Higher savings rates should help them with that.
First-time buyers may be quite pleased that the price of property is coming down. However, they will be almost as unhappy about the new, more stringent requirements for a deposit on their new home.
While saving for a deposit may be hard going, the good news is that interest rates for savers are at their highest for seven years.
The latest forecast from the Council of Mortgage Lenders is for house prices to fall by 7% during 2008. Coupling the increased savings rates with the projected fall in house prices equates to good news for first-time buyers who are prepared to wait for six to nine months. Some estimates put a 15% fall on house prices in the next 18 months, which would be even better news for prospective house buyers.
Most mortgage deals now require a minimum of a 10% deposit, as 100% mortgages have disappeared and 95% mortgages are going the same way.
An example at Nationwide shows that the bigger mortgage you can raise, the better position you will be in. If you can raise a 5 to 10% deposit, then you can get a Nationwide fixed rate of 6.45% for three years, but if you can raise a deposit of 25%, you will benefit from a much lower interest rate of 5.75%.
The average property for first-time buyers in London currently costs around £259,000, for which a 25% deposit would mean raising £64,750. That’s an awful lot of money up front, but would save you thousands of pounds in interest payments of the long term – and would help secure your house, whereas lack of a deposit may see your dreams disappear.
For savings it is best to look at tax free savings such as an ISA. After that, high interest accounts for regular savers are best. Principality Building Society is offering 7% pre-tax on its Regular Saver so long as you can put away £500 each month.
