THE UK media appears to have become fixated on the doom and gloom surrounding the credit crunch. But as with most clouds, there is a ailver lining, and if you're a potential first-time buyer or someone who has money to save there is a real plus point
that has been largely overlooked.
With property prices forecast to decline further over the next 12 to 18 months, those struggling to get a foothold on the property ladder may benefit. If property prices do cool, and some predict that this may be by as much as 20 per cent or more, first-time buyers will be able to snap up their first home at a considerable discount.
In the meantime, their savings towards that much-needed deposit will be boosted by some of the highest interest rates we've seen for over seven years. For the first time in a decade there is an incentive for first-time buyers to save hard for a deposit without the fear that their savings will be unable to keep pace with house price inflation.
Lenders are increasingly looking for borrowers to stump up a 10 per cent deposit, hence it is time for some serious saving. Admittedly it is still possible to bag a 95 per cent mortgage, but the fact that you will be putting down a smaller deposit will result in you having to pay a higher interest rate on your mortgage.
With savings interest rates of 6.5 per cent gross and above becoming commonplace, and one or two institutions breaching the 7 per cent gross barrier, it really is worthwhile getting into that regular savings habit. For example, if you put away £800 a month for 18 months, you would generate a tidy sum of £14,400 plus £684 net interest at a rate of 6.5 per cent. And by demonstrating the discipline to save this sort of money on a monthly basis, you can prove to yourself that you are capable of managing a mortgage repayment of a similar amount. A lender will also look favourably on someone who has shown they can save regularly and this will certainly help your cause when applying for your first mortgage.
The boom in savings rates is not just good for those saving for a deposit on a home, it is good news for all savers. So find out what rate of interest you are getting on your nest egg at present and if it's not up there with the best, don't be afraid to switch.
• Andrew Hagger is head of news and press at Moneyfacts.co.uk
The full article contains 448 words and appears in The Scotsman newspaper.
