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First Time Homebuyers Use Credit To Fund Loan Deposit

by Jim ONeil on November 10, 2011

in Mortgages

Buying a home is something that fewer UK residents can afford to do. However, even that is not deterring many of them from becoming new homeowners. Desperate times call for desperate measures and these include using bank and payday loans and credit cards to fund home deposits. This increasing trend has many debt experts very concerned.

It could easily worsen the financial situation of consumers who are already on financially shaky ground.

In a recent survey by SmartNewHomes, one in ten first-time homebuyers said they were willing to use bank loans or credit cards to fund their home deposit. For many people, this deposit represents the largest financial roadblock to owning a home.

Half of new homeowners plan to use savings, while close to one-fifth will receive financial support from a parent. Approximately five percent will need to sell a personal asset such as a car in order to afford their home deposit.

Financial concerns do not end with funding the mortgage deposit, as lenders are reluctant to provide home loans to first-time homebuyers. This is causing concern for 41 percent of people in the market for their first home. They feel they will not qualify for a mortgage and the majority feel that the government should provide more assistance. Even FirstBuy, the new federal initiative announced in May, is not enough, they say.

Approximately 16 percent of people polled do not think they will ever own a home. This is a substantial figure that does not bode well for the excess inventory in the housing market. One-fifth of respondents believe that homeownership will be delayed until they reach their 40s.

Better late than never but still rather concerning for those who currently have houses for sale.

SmartNewHomes director Steve Lees stated that even declining prices for UK homes have not been enough to convince first-time homebuyers that houses are affordable. At the same time, rent is becoming more expensive, so people look for a solution.

Getting on the ladder requires that many of them resort to bank loans and credit cards. Buyers are willing to take on this debt in order to secure cheap loans for their home. Their goal is to repay the money borrowed for the deposit at a later date.

Mr. Lees recommends that first-time homebuyers who are struggling to save for a deposit take a more comprehensive look at their options. The FirstBuy government equity program may help some of them, while others may benefit from deals and incentives offered by homebuilders.

Still others may find that purchasing a home with friends or family members is a feasible solution.

To address several issues presented in the survey, a First Time Buyers’ Club has been launched by SmartNewHomes. New homebuyers can get advice and tips regarding deposits, housing prices, incentives, mortgages, and much more.

By educating these individuals, the company hopes to make the road to UK home ownership a smoother one. Finding the best way to fund a home deposit minimizes the amount of debt taken on by a new homeowner.

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