Why first time buyers are important to the housing market

As a first time buyer you form the foundations of the UK housing market. It's called the property ladder for a reason. You start on the bottom rung and as you start to build equity in your property and your salary increases to enable you to afford a larger mortgage, you start to move up the ladder.

However, in order to move up the ladder, you have to have your place on the ladder filled by somebody else - i.e. by selling your place.
If you're on the bottom rung of the property ladder, this place has traditionally been taken by first time buyer, and during the early part of the noughties by property investors seeking to gain an advantage from the rising market.

All was well in the world with optimistic lenders willing to lend up to 125% of the value of a property for first time buyers, and even buy to let lenders willing to stretch themselves up to 85% of the value of a property. In effect you didn't need much if anything to get onto the property ladder and the boom that this created and subsequent increase in prices caused by demand meant that soon homeowners had equity even with 125% mortgages.

However, whilst all might have seemed well, logically, house prices can't keep increasing at a level way above and beyond salaries, as regardless of the mortgage provider's willingness to lend in excess of a property's value, they are still going to expect to see the mortgage paid every month. In effect, the housing crisis in America is an inflated version of what is happening in the UK, with so called sub-prime mortgages being withdrawn and borrowers being brought back into the reality of more traditional lending rules.

As a result of all of this, even though, according to most commentators and research house prices are now starting to fall, it isn't really good news for the first time buyer as it is much harder to get hold of the funds required to get onto the property ladder. What's more, if lending restrictions remain tight, it is likely that to get a mortgage it will now be necessary to put down a 10% deposit as a minimum which at today's average house prices in the UK is getting on for £20,000.

With the new blood of the first time buyer being forced to remain in their house share or flat share it is therefore difficult to see how the UK housing market will regain buoyancy in the near future.