Comparing mortgages has never been more important for first time buyers.  The importance of first time buyers for the UK housing market can not be under estimated. Without them, there would be a total collapse in the property market, from the bottom end, relatively low value property, to the top of the ladder involving properties worth millions of pounds.  The problem, and reason to be concerned is that the number of mortgage approvals are at a 15 year low, a record which is expected to be broken several times during 2008.

The reason behind the low number of mortgage approvals can be seen as a side effect of the credit crunch.  As banks have taken a severe hit through risky lending strategies focused on the Sub-Prime borrowers, the entire banking industry is now perhaps overly cautious when it comes down to lending out money.  100% mortgages are a thing of the past, with borrowers now required to put down a minimum of 10% the value of property.  Keeping in mind the average house price in the UK at the minute, deposits for first time buyers are going to be in the region of 10k – 20k.

First time buyers are required to save this money for a mortgage deposit at a time of global economic downturn. Oil prices are exploding upwards, food prices, gas and electricity prices are all rising at unprecedented levels, far above levels of inflation. Taking these factors into consideration, saving 10k – 20k for a mortgage deposit, the average first time buyer is likely to struggle.

So what kind of mortgage offers are available to first time buyers, and how do they compare? Generally speaking, an interest rate of around 7% is to be expected. On a £100,000 interest only mortgage, this would see repayments at around £580 per month. In many areas and city centres of the UK, a property for £100,000 is unrealistic. Therefore, an interest only mortgage of £160,000 would equate to repayments of around £930 per month. A 25 year repayment mortgage however, would see repayments in excess of £1100 per month.

The sums involved are staggering, considering the average UK wage is estimated to be approximately 23k, meaning that after tax, less than £1,400 will be available, assuming no student loans are to be deducted.  As the average first time buyer is likely to be earning under 23k, it makes the sums even more difficult to justify purchasing a first time property in the current climate.  With this in mind, it has never been more important to compare mortgages.

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In today’s tough market many banks are closing doors and others are struggling to survive.  The banks that decided to offer “specialized” financing are now wishing they hadn’t and for the banks that stayed on the straight and narrow are glad they did. 

The real estate world is going through what many would call a “Tough Time.”  Most people in the Real Estate profession  have either retired or found new jobs because the last year and a half home sales have dropped more than 40% in some parts of the Nation.  What has the government done to try and fix this?  Well the fed has tried numerous times over the past six months to stabilize rates by lowering the fed funds rate and create a turn in the market to get things back on track.  So far none of those attempts have worked because we’re still dealing with declining home prices and banks are still having a hard time lending money.

Just recently, the Fed started allowing big firms to temporarily borrow money from the Fed for emergency financing that only large banks had access to previously.  These actions have caused many to protest and raise concern because many believe the Fed is putting tax payers hard earned money at risk by simply bailing out Wall Street.  The Bush administration and Fed Officials state this is an action they needed to take to prevent an economic meltdown.  Analysts believe the way the first three months of this year have gone, we’re heading towards what many would call a recession.

Despite all the negatives associated with today’s market, there are a number of positives that we’ve noticed take place during this time.  For the people losing homes to banks and dropping prices on their homes, there’s always new purchasers out there looking for a good deal.  Now is the time for First Time Homebuyers to start buying their dream homes.  Two years ago a home that was going for $250,000 is now going for $150,000.  Despite what people may think, there are still a number of programs out there for First Time Homebuyers.  There’s been a large increase in local and state grants that are strictly for First Time Homebuyers that gives them a chance to own a home and afford it.

Another positive that has been a result of today’s tough market is lowered interest rates.  The Fed has desperately tried to stabilize this market and it hasn’t had much affect on the market so far, but one thing it has done is helped out home owners who have a Home Equity Line of Credit.  Two years ago the prime interest rate was somewhere around 8.25% but over the past year the Fed has dropped that rate and is currently at 5.25%.  This has saved many home owners hundreds of dollars which has created a little relief. 

It’s a tough market but if you can get through the “Tough Times,” just think about how nice the good times are going to be.  Also just remember, you’re not the only one going through “Tough Times,” the whole Nation is.

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If you’re thinking of buying a home, now might be the right time! Interest rates have fallen below 6.00% to start the year in 2008 which is below 2007’s national average of 6.44%.  Mortgage rates have always been known to fluctuate but it seems as though 2008 is starting out strong.

The unexpected and steady decline in rates could help cushion the home sales for 2008 by making mortgage payments more affordable.  With the decline in home values, now is the time for first time homebuyers to purchase.  With an interest rate of 6.00% and a home valued at $150,000, a monthly mortgage payment would cost $899 for Principle and Interest.  Most renters can afford this and can now have the opportunity to own and not ever have to deal with landlords again.

With interest rates as low as they are today, it’s also giving current home owners a chance to refinance out of their current situations.  Many Americans are dealing with fluctuating ARMs (Adjustable Rate Mortgages) that are coming due and it’s causing their monthly payments to increase which then causes many to forclose.  Lower interest rates could not have come at a better time especially with the estimate of $1.2 trillion in ARM loans scheduled to reset to higher rates this year.

Lower interest rates help the economy, it gives first time homebuyers the opportunity to own, it gives current home owners the opportunity to refinance into better situations, and all of this causes more spending in the economy.   My advice would be to call your Mortgage Consultant and ask to get an annual mortgage check up.  If you’re not currently satisfied with your situation, then now is the time to make some changes and save! 

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