Times & Star

Borrowing’s out. It’s time to save

By Philip Ward, of the Cumberland Building Society

Last updated 09:15, Monday, 31 March 2008

Vist the Cumberland Building Society website

Crunch: First-time buyers may find they hit a brick wall when it comes to getting a mortgage so plan ahead and save for a deposit

It looks like the writing’s on the wall for first-time buyers. The 125 per cent-plus mortgages are here no more and 100 per cent mortgages are also on the way out. So are first-time buyers about to hit a brick wall?

It used to be difficult to buy your first property in the “olden days”. Even going back 10 years, a first-time buyer had little option but to scrimp and save to get a deposit together.

More recently though, first-time buyers have been able to forget about saving at all.

A first-time buyer could turn up at certain banks and borrow as much as 125 per cent of the value of a property.

House prices were soaring and while many older people would have gulped at the enormous mortgages being taken onboard, the reality was that the massive mortgage was soon a more normal loan-to-value, so few first-time buyers thought twice about borrowing such huge sums.

However, the landscape in which the financial services industry is operating today shows a marked change compared to this time last year.

Mortgage lenders are now tightening their purse strings as a result of the ‘credit crunch’ and withdrawing mortgage products that made it easy for first time buyers to borrow a high percentage of a property’s value.

So what do you need to do now if you want to buy your first home?

Well you can either get in there quick and try to find a 100 per cent mortgage but this will be noticeably more expensive than the 95 per cent mortgages on offer.

The other option is a return to the old days. Plan ahead and save for that deposit.

My advice would be to get in to the savings habit with an individual savings account (ISA). A cash ISA works like a tax-free savings account. You don’t have to pay any income tax on the interest and you can pay in up to £3,600 each year from April 6, 2008.

If you can save £300 per month you’ll start getting used to the commitments you’ll have in your first home and you’ll be getting a tax-free return on your savings.

Furthermore, in the time it takes to save a five per cent deposit you may benefit from the falls that are predicted in the housing market.

Whatever you do, get some advice. Go and speak to a few estate agents about what you can get for your money and their views on prices in the future, get some mortgage and savings advice and make sure you can afford the house that you’d like. See what products are out there and decide what options are best for you but, most importantly, take your time.

It’s easy to get caught up in the excitement of buying your first home but remember it’s a commitment that you’ll have for a long time.

Saving up for a year or two now might seem hard work but it could save you an awful lot in the long term.