Tuesday, August 31, 2010

Larger deposits demanded by UK banks

In the wake of the econmic crisis, British banks have started asking mortgage applicants for larger deposits, which according to Rightmove could have an adverse effect on property prices. First-time buyers now need a 25% deposit instead of the traditional 10% common before the crisis. And according to the Council of Mortgage lenders, 80% of first-time buyers aged under 30 need the assistance of their parents to finance their purchase, pushing up the average age for a non-assistd purchase from 33 to 37 years.

In many ways, the British housing market may gradually come to resemble that in France, where buyers purchase essentially with a view to the long term (for occupation or investment) and banks maintain their traditionally cautious lending policies - a loan being based on the borrowers ability to repay, rather than the notional value of the property, with monthly payments not allowed to exceed one-third of income.

The higher cost of transactions, which include agents' fees, Notaire's fees and government taxes and charges, also serve to discourage frequent property purchases with a view to 'trading up' and making a short term profit. Many first-time buyers are in fact older than their British counterparts, and may choose to establish their main home in a rented property (for example in a city centre where the cost of buying is prohibitive) and buy a second home in the countryside in which they will eventually retire.

Commentators on the article* have generally applauded the idea of higher initial deposits, with some suggesting it is time British house buyers get used to the idea of regarding their home as a cash-making asset instead of somewhere they intend to live for a long time.

Source - Philip Aldrick, Daily Telegraph 30 August 2010.