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And if they can find a mortgage, first-time buyers also face job-loss worries, says Rupert Jones
Fewer than 9,000 first-time buyers were able to take out a home loan during January, less than half the figure of a year ago. And the price of entry into the housing market is continuing to rise. The average first-time buyer's deposit at the start of this year was 24% of the value of the property - a new record.
Estate agents have seen an increase in inquiries, but many would-be buyers are finding it virtually impossible to raise finance from banks and building societies. It appears to back the theory that lenders are not lending - or is it because many potential first-time buyers are sitting on the sidelines? After all, house prices continue to fall - there were predictions last week that they could drop a further 55% - and for many people, dreams of ownership have been overtaken by fears for jobs.
Both statements are probably true. Mortgage lending is down, but Michael Coogan, of the Council of Mortgage Lenders, defended his members when he said that "consumer confidence and lender appetite will remain muted in the face of rising unemployment and falling house prices", and, intuitively, it is hard to disagree with this reading.
There may be differences of opinion over the cause - lenders being too tight with their money, the alleged failure of government schemes designed to get funds flowing again, confidence being hammered by job uncertainty - but there seems to be growing agreement that ministers need to do more to re-energise the home loans market.
In the summer of 2007, homebuyers were being offered tracker mortgages with a rate 0.5%-1% below the Bank of England base rate. And maximising your borrowing was not a problem - Northern Rock was just one lender that would let people borrow up to 125% of the value of their home.
Today, the best tracker rates are 2% or more above the base rate. For example, the internet bank First Direct has a "best-buy" deal where borrowers pay Bank of England base rate plus 2.39% for the life of the loan, giving a current pay rate of 2.89%.
Mortgages of up to 125% are long gone; in fact, as one mortgage broker put it, even 95% loans are virtually a "dead duck". Most lenders now limit their loan-to-value to about 85%, though there are still some big players (including Royal Bank of Scotland and Cheltenham & Gloucester) that will go to 90% on some deals.
Another big change, of course, is that many of the best-known high street lenders are now partly or wholly owned by the taxpayer. Meanwhile, many mortgage brokers are suffering. Last week it emerged that Chase De Vere Mortgage Management and Cobalt Capital had closed for business as a result of the difficult market conditions.
Even if a homebuyer can rustle up a 10% or 15% deposit, it is far from certain they will meet the lender's requirements, says David Hollingworth at mortgage broker London & Country. "Lenders are getting far more picky about what they will and won't do," he adds. A couple of years ago, a blemish on your credit file, such as a late payment, would have been virtually ignored. Lenders now pay a lot more attention to such "blips", and may turn people down because of them, so anyone who thinks they may take out a mortgage in the next couple of years should make every effort to ensure all their bills are paid on time.
First-time buyers who think they have been prudent by abstaining from personal loans and the like can end up being penalised by this focus on credit ratings because many of them will not have a credit track record. Being "credit inactive" can result in a black mark on your file. "If you are a first-time buyer, therefore you haven't had a mortgage before. Straight away you are on the back foot," says Hollingworth.
By contrast, an established borrower with a good credit rating and borrowing 60% or less of their property's value pretty much has the pick of the market.
Some lenders are reserving their best rates for customers with a 40% deposit. Abbey has a five-year fixed-rate mortgage at 3.95%, and HSBC has a lifetime tracker at 2.95%; in both cases the maximum loan is 60%.
In November's pre-budget report, Alistair Darling said his measures would "help the homeowners of tomorrow buy their first home". Since then, life has got a lot harder for such people. All eyes will be on the chancellor next month to see what he does to tackle the mortgage drought. But don't expect him to say what some who do not work in estate agencies or mortgage lending think: now may not be the time for first-time buyers to wade into the property market anyway.
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