News: First Time Buyers Turn to Alternative Funding

The latest research from leading peer-to-peer (p2p) lender Zopa reveals that first time buyers are increasingly turning towards alternative funding in order to raise a deposit for their first home faster.

House prices rising fast

Zopa surveyed 1329 customers aged 19-40. Nearly two thirds said they were using their loan to supplement their savings, in the hope of reaching their target deposit quicker.

34% expected to be able to buy a year sooner, whilst 21% thought it would save them six months. Even with this help though, most imagined it would take up to three years for them to be in a position to purchase.

Their urgency is understandable - but is it time to wait? Prices are currently rising so fast that the Royal Institute of Chartered Surveyors has recently adjusted its predictions, with the projected increase by the end of the year leaping from 3% to 6%. Northern Ireland is expected to be the forerunner, with an incredible rise of 11% expected.

So serious is the problem that the global fiscal organisation the OECD has categorised the UK as a country where homes are overvalued but still rising in cost, putting it at risk of price correction. Other countries in this category include Canada, Australia and New Zealand.

Deposits increasingly out of reach

Part of the problem is that the gap between salaries and house prices continues to widen, forcing first time buyers to set themselves ever more challenging savings goals for their deposit.

Market analysis by the Guardian shows that in 1995 the average house cost between 3.2 and 4.4 times the median salary. In 2013, however, that same home would cost from 6.1 to 12.2 times the median salary – and in light of the dramatic price rises this year, the gap is surely getting worse.

This trend is reflected in Zopa’s findings, which showed that 40% of customers were aiming to save a deposit of £40,000 - a proportion that rose to 55% amongst Londoners.

Fionnuala Earley of Hamptons estate agent suggests that the gap is due to good financial conditions before the credit crunch:

“The biggest factor is that in the run-up to the crash, interest rates were low, so you could afford to service a bigger mortgage then. There was also low inflation on essentials like food, fuel, transport and utilities, so people had more money in their pockets and were able to gear up for bigger mortgages.”

Impact on the rental market

As first time buyers struggle to get onto the property ladder, pressure on the rental market is also building. This makes it a great time for buy-to-let developers, investors and landlords, but an equally challenging one for renters.

Figures released by tenant referencing and insurance specialist HomeLet show that rent in the UK over the past three months is 10% higher than the same time last year. This equates to an average of £1,558 pcm in London and £766 pcm in the rest of the country. An increase was seen everywhere except the North West of England.

Help is at hand

In the current climate, conventional funding from a bank may not be enough for you to achieve your property ambitions. Savvy home buyers and developers are therefore starting to look at alternative forms of funding.

A short term briding loan or development finance could offer a modern and practical solution to a problem, helping release capital, bridge a gap in a housing chain, or get a quick injection of cash. Make a quick enquiry to find out more, or contact our team of underwriters.