Homebuyers step back from the edge of affordability

Published 01st Jun 2007

House-buyers across the country are taking increasingly prudent steps to reduce the risk of mortgaging to their financial limits as the possibility of the fifth interest rate rise in under a year looms large.

New research from Yorkshire Bank’s Mortgages team suggests that the Bank of England’s (BoE) measures for reining back rising house prices and curbing inflation are beginning to grip as, almost a quarter of buyers admit they are looking to avoid taking out a maximum mortgage.

With minimal reserves to fall back on, even first-time buyers desperate to get a foot on the property ladder are beginning to demonstrate greater caution.

Yorkshire bank’s research found almost a third intend to avoid stretching their finances from the outset for fear a further rate rise might tip them over the edge of affordability.

Over 70 per cent of those surveyed anticipate further rate rises over the next 12 months.

Despite seven out of 10 people expecting house prices to continue rising over the next 12 months, just 17 per cent would still be prepared to offer the full asking price immediately.

Perhaps surprisingly, only 3 per cent said they were considering changing to a cheaper mortgage to save money. Among first-time buyers hoping to get onto the property ladder, more than a quarter would prefer a fixed rate mortgage to give some payment certainty in the next few years.

Gary Lumby, Yorkshire Bank’s head of retail, said: “What our survey shows is prudence, not panic - all the signs are that the market will still remain strong. But with rises in the Bank of England’s base rate, and with many economists predicting a further rise if not next month, then in the near future, it is inevitable that homebuyers will become more a little more cautious with their borrowing.

“The recent rises have started to make buyers take a realistic view of what they can and can’t afford and to take measures to protect themselves against unforeseen changes in their personal circumstances. What we’re seeing is buyers being shrewder than when the housing market was at its most buoyant, both in the price they’re prepared to pay for a home and how they choose to finance it.”

A man’s home is still his castle
Despite feeling the squeeze currently with Bank of England’s Base Rate at a six year high, Yorkshire Bank’s research shows that homeowners are prepared to make cutbacks in other areas of their life in order to afford their home.

Almost 25 per cent felt that owning their home is so important to them that they will sacrifice holidays, their social life and nice cars to fund it.

The survey showed that this was particularly true for would-be first time buyers eager to get onto the property ladder. Over a third were prepared to adapt their lifestyle to make that elusive first home a reality.

Lumby said: “Despite the effects of rising interest rates along with higher energy bills, increases in council tax and growing personal spending, Britons clearly place great pride and importance in owning their own home and are prepared to forgo other luxuries in its favour.”
By Jennifer Lowe

Source: ' What Mortgage '

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