Buying a Flat in the Credit Crunch

March 4, 2009 - PRLog -- To coincide with the online publication of “How to Buy a Flat” – a book providing advice on buying a flat – HowTo.co.uk takes a look at the how you can buy a property in the credit crunch…

What are the problems and opportunities of buying a flat during the Credit Crunch?  What caused the crunch and how does it affect the housing market? What problems does the first time buyer face and how can they avoid them in order to get their first foot on the property ladder.

What’s the Credit Crunch?

The Credit Crunch is the name given to a sudden decision by the finance industry to retract the availability of their lending and loan products, in order to stockpile or hoard money for their own protection.   The banks, building societies and finance companies offer less favourable rates to their customers, remove unsecured products, increase interest rates and bar those with a poor credit history from borrowing in order to reduce risk.  This particular credit crunch was created by the Finance sector itself when it over-invested billions of pounds in the US subprime mortgage market.  When the market collapsed, the Finance sector went on the defensive to ensure they did not lose any more money.

Early Signs of Economic Problems

One of the first signs that there was economic misery approaching was the initially slow decrease in property prices.  The next indication was the gradually increasing cost of oil.  The increased cost of living can be noted by looking at the slow but steady increase in the cost of your shopping bill.  Eggs, meat and other fresh produce are all dramatically rising in price.

Problems for the First Time Buyer

There’s no doubt that getting a mortgage is more difficult than it was a year ago.  On the upside, there are an increased number of properties to choose from and the prices have dropped significantly in the last eighteen months.  However the mortgage lenders have gotten cold feet about lending to those with all but the finest credit histories.  Those with poor credit who can get mortgages are hit with fees and high interest rates.

The next casualty was 100% mortgages.  They simply do not exist anymore.  You can, for a fee get a 95% mortgage with fairly high interest rates, but that may not be for everyone.  Shared Equity mortgages may be the solution for others who need to get onto the property ladder.  Companies will pay up to 20% of the cost of your house, meaning you only have to get an 80% mortgage.    If you want a regular mortgage, you need to improve your credit history and offer some security in the form of a 10 or even 15% deposit on your new home.

Negative equity

Another problem that new homeowners are facing is negative equity.  This is when the price of your house drops in value to less than your outstanding mortgage.  They owe more than the house is worth.  This is putting First Time Buyers off making their initial purchase, which is probably a good idea.  If you give it another six to eighteen months whilst you save up the most deposit money that you can, you will end up with a much more affordable mortgage payment and have to borrow less.  When house prices start to climb a little, there’s a good chance that it is time to invest in property and the banks will improve their mortgage interest deals once again.

Placing your first foot on the property ladder takes persistence, sacrifice and in this economic climate, some considerable patience.  If you need to buy, and you can save ten percent, someone will always lend you money. How you get that deposit money together, that’s the real issue during a time when costs are constantly rising.

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