First-time buyers will face strong competition from retirees after the new pension changes come into force in a month, Scottish Friendly warns.
If you are planning to buy your first home you should hurry to land a deal before April, according to the Scottish savings and ISA provider.
First-time buyers would not be able to compete with the retired buyers who are likely to flood the market as the latter will have access to their entire pensions. This will give them a huge lump sum to put towards a property, while the biggest challenge for first-time buyers is getting enough money for a deposit.
The expected increase in demand coming from people wanting to invest in property during retirement will boost house prices further. These developments are likely to prompt lenders to turn away from first-time buyers and focus on offering mortgages at lower loan-to-value, which would mean most first-time buyers could not have a chance getting on the property ladder for a long while.
Neil Lovatt, director at Scottish Friendly, comments:
“The goal for mortgage lenders during the last decade was to get people onto the property ladder. This was the case in the build up to the economic downturn, but even after this, lenders were quick to return with offers. In the last couple of months we have seen a very competitive first-time buyer mortgage market, but this is likely to change after April.
“With thousands of people gaining immediate access to cash lump sums we are likely to see improving rates in the 40-50 per cent LTV mortgage market. These mortgages will be less risky for the banks, but it could result in first-time buyers having to build even bigger deposits to have even a slim chance of being accepted by lenders.
“The saddest aspect of all of this is that recent research shows 70 per cent of 18-34 year olds are currently putting money into savings each month, compared to just 57 per cent of those aged over 35.(1) We have a young population that understands the need to save rather than spend. Most will be doing this because they would like to own their home one day, but if more is not done to help these people, then they may never get that chance.
“Retirees also need to be wary of seeing property as the main source of funding their retirement. While tempting for many to invest in a ‘real’ asset, the simple fact is that investing in such a way will inevitably leave some pensioners high and dry. Volatility in the market and the potential to be caught in property bubbles makes it likely that we will see a large number of pensioners at risk of losing their retirement savings if the market turns against them.”
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