Blog

FIRST-TIME buyers are facing the prospect of getting an average deposit together of around £32,000, with one in six considering taking out a loan to cover the cost of the deposit, according to data from comparison site Moneysupermarket.com.

A quarter of 18-34 year olds have already scraped together enough cash for such a hefty deposit, while nearly a third will continue to rent until they can afford to put down such a wad of cash.

Just over one in 10 18-34 year olds are considering getting onto the property ladder in the next 12 months to take advantage of the fall in house prices. But with the number of mortgage deals down by nearly two thirds in the past year, and deposits of at least 25 per cent needed to get the best rates. If you have 10 per cent – which used to be considered a reasonable deposit – you would now struggle to get any deals at all.

Louise Cuming, head of mortgages at moneysupermarket.com said: "Taking out a loan to pay for a mortgage deposit is a dangerous move, and must be avoided even if it means you have to delay buying your first home. Anyone who takes a loan is effectively taking out a 100 per cent mortgage through the back door. Not only will the mortgage lender decline the application if it discovers this is the source of the deposit but it is also a huge risk to the borrower - your monthly outgoings will be higher which means there is a greater chance of you finding yourself unable to keep up with repayments."

Some potential first time buyers are playing a waiting game with 14 per cent hanging their hopes on property prices dropping further and six per cent banking on the fact that we'll see 100 per cent mortgage deals return to the market.

Ms Cuming added: "It's easy to see why only 13 per cent of under 34 year olds are planning to get on to the housing ladder at the moment. The need for such a high deposit is pricing many people out of the market. The obsession with equity that has gripped mortgage lenders over the last couple of years has hit first time buyers hardest. Lenders need to concentrate more on assessing the affordability of the mortgage on a case by case basis and less on the size of the deposit if they are serious about improving the mortgage market."

By Alison Steed (mymoneydiva.com)