As the Economic Crunch begins, Mortgages are becoming even harder to get.
The economy is in trouble and mortgages are being badly affected. It is now, notoriously difficult for first-time buyers to get a mortgage in order to climb the first rung of the housing ladder. Even rental accommodation in London costs on average twice as much as it does in many other British towns and cities.

Last year, the Telegraph reported that in 20 years time houses would cost homebuyers ten times their average earnings and with predictions like that, it isn’t surprising that owning property is so important to Britons today.  New homebuyers worry that if they don’t buy a home soon they could lose the opportunity to do so, all together.

On the 17th of December last year The Times reported that London house prices had fallen by an average of £28,000. Reading the national press, it is easy to see there are no real hard and fast rules. House prices were rising again at the beginning of the year but this month they have fallen so dramatically that people who had thought they had a mortgage secured are finding those mortgages are ripped out from underneath their feet.

Before now, many homeowners had found themselves in negative equity for periods, partly thanks to the fluctuating house prices and to a degree due to the 100% mortgages offered by many banks and building societies. Northern Rock for example, whose recent financial problems have been well documented, had been offering first-time buyers 125% mortgages.

Moneyfacts.co.uk reported that over 200 mortgage products provide 100% mortgages to cover total property prices. The site also states “House prices have risen continually over the last 11 years but this does not mean the future will hold the same fortune.” The question which the site asks and which so many home owners have been asking is: how long will it take before the housing market runs out of steam? The answer sadly seems to be that this month it has.

In the same way that Northern Rock relied too much on its small number of savers, and on loans from the US sub-prime mortgage market, British homeowners could rely too much on house prices increasing. If they don’t increase, which it presently looks like they won’t, there will be a deficit between the worth of a house and the mortgage which the owner has taken out to pay for it.

In his column recently, Money Week’s James Ferguson said “In the last two months, the average house price in London has fallen 5%.” He added. “In the context of the massive rises in house prices over the last few years this doesn’t sound like much, but consider this: if prices in the capital keep falling at this rate, they will have fallen 30% from their peak by this time next year...”

To deal with the fear that so many first-time buyers would not be able to afford a mortgage, the government devised various schemes which are now available. First-time homeowners can now buy a percentage of a property, usually between 25% and 75% and pay rent on the rest.

This could lead to a generation of young professionals who rather than owning all of their own home only own a small proportion of it. Is that a good thing? Only time will tell. If the markets recover and house prices increase the governments housing schemes will make sense, if the housing market crashes and doesn’t recover, millions of homeowners will be grossly out of pocket.