Glimmer of hope for home buyers

The Bank's latest decision not to raise rates has led to cheaper mortgages, says Teresa Hunter

A TINY light began to flicker at the end of the tunnel for homebuyers as the Bank of England resisted pressures to increase interest rates, allowing some of the UK's biggest banks to reduce their borrowing costs.

The Bank held the base rate at 5% despite concerns about inflationary pressures, thereby protecting homebuyers against higher monthly mortgage bills.

Yet the move comes amid the latest news on house prices and repossessions. The Halifax announced that UK average house prices fell by 1.7% in July, pushing them down by 9% compared with last year, wiping out the last two years of property inflation.

And the Council of Mortgage Lenders reported 18,900 repossessions during the first six months of this year, up by nearly half on the 12,800 people kicked out onto the streets this time last year. The number of mortgage holders behind on their payments has also gone up. They rose by 29% to 155,600, up from 120,800.

CML director general Michael Coogan said the rise was in line with the 45,000 expected repossessions this year, and pointed out that it was a small number compared with the nearly 12 million mortgage borrowers in the UK, or with the numbers who lost their homes during the last housing slump.

However, another mortgage source added: "Right now repossessions are small. But if prices keep sliding it is only a matter of time before buyers begin handing back the keys and walking away. Then we could see repossessions climb sharply."

Meanwhile, the chief City watchdog the Financial Services Authority has warned lenders to treat customers in financial difficulties fairly, after conducting research which revealed that as arrears problems soar, some mortgage companies are much quicker to repossess than others.

More positively, some of our biggest lenders have cut rates or improved their terms to help homebuyers.

Halifax has teamed up with Persimmon Homes to offer first-time buyers a new "Double your Deposit" scheme when they make regular deposits into a savings account with Halifax or Bank of Scotland for a minimum of six months. If the savings are used to buy a Persimmon home, the builder will match them.

For the third time in weeks, Nationwide has trimmed its charges for consumers looking to remortgage on its two, three and five-year loans to 5.98% with a £599 fee. Housebuyers pay slightly more at 6.18%.

The Abbey has also trimmed two and three-year deals so that, for example, its two-year tracker is now 5.89% with a £995 fee. Standard Life has also cut its deals by up to 0.38%.

Mortgage broker John Postlethwaite said he believed conditions in the market were easing. He said: "I can still get borrowers five times or even seven times salary by going to the right lender. Some banks have money to lend while others have become much more cautious."

Yorkshire Building Society has announced a fee-free summer and is scrapping its arrangement fees during August. It also has a "divorce" mortgage which allows a payment holiday for the first six months. A spokesman said: "Most people experience problems when either one of them loses their job, which unfortunately we are seeing happening, or when their relationship breaks down. This offers six months' grace to get back onto their feet."

Chancellor Alistair Darling has hinted at changes to stamp duty to help homebuyers, either by delaying payment or scrapping it for first-time buyers.

Charcol's Ray Boulger welcomed any such move, saying: "The Government might actually pull in more tax by lowering the overall burden and seeing more money come into Treasury coffers from all the other economic activity a more robust market would bring."

Prices are falling but I can't buy

AFTER a decade of renting, Ross Chmiel would love to buy a place of his own, but the way things stand he doubts it will become a reality for him for years yet, if ever.

The 28-year-old project manager with Scottish Gas says getting that first foot on the ladder is a distant dream as a single guy buying on his own. And he adds that falling house prices haven't helped him one bit.

He says: "Yes, prices have fallen, but the deposit you need has gone up and it's much more difficult to get a mortgage. So nothing has improved.

"I also feel really sorry for anyone who did manage to buy over the past year or so, and are now struggling with higher mortgage bills and falling prices. If I were in that situation I would be absolutely gutted. It's a rubbish situation all round."

Ross, from Edinburgh, says the single biggest help the Government could give him would be the abolition of stamp duty. "It can add thousands to the price of a property, money I just don't have," he says.

Next he would like to see a return to the days when banks would lend 100% or more of a property's value.

He says: "It is so hard if you are on your own to save the money needed for a deposit. After my rent and all other living costs, the absolute maximum I could save per month would be £200. It would take me years at that rate to save for a deposit of £15,000 or £20,000 or more, plus find all the other costs associated with buying."

A brief history of stamp duty

1694: stamp duty introduced temporarily on vellum, parchment and paper to pay for the war with France. It proves so lucrative it is never repealed.

18th century: it is extended to other goods including insurance policies, gold and silver plate and even wig powder.

1765: it leads to the Boston Tea Party and the American war of independence when imposed on the colonies, triggering cries of "no taxation without representation".

1808: extended to property sales.

1900 to 1980: successive governments lift threshold above average house prices, ensuring it is a tax which only bites the rich.

1984: threshold raised to £30,000.

1991 to 1992: stamp duty holiday announced for all properties worth less than £250,000 in an attempt to kick-start a depressed housing market.

1993: first-time buyers typically pay no stamp duty.

1996: revenue from stamp duty hits £675m.

1997: stamp duty increased.

1998: increased again.

1999: increased again.

2006: revenue from stamp duty leaps 10-fold to £6.4bn.

2008: if a house costs less than £125,000 then the purchase is exempt from stamp duty. Above that, duty is liable on the full price. Three-quarters of first-time buyers now pay the tax, as do most other homebuyers.