First-time buyers gambling on deposits

Thursday, 01, May 2008 06:52

A worrying number of first-time buyers are using unsecured loans, borrowings and credit card debt to finance a house purchase deposit.

New research from IAmMoving.com - an online change of address service - finds three in ten first-time buyers used such method to raise the necessary cash.

However, a further 42 per cent of those who are currently in the process of buying, or have just bought, their first property are taking the safest option of using savings to pay the deposit, the survey found.

The news comes as Nationwide reveal property prices fell for the first time year-on since March 1996.

The IAmMoving found 13 per cent of first-time buyers were taking out an unsecured loan or credit card debt to raise the deposit, which is likely to be around £10,000 to £15,000.

Meanwhile, a further 17 per cent were borrowing the money from friends or family.

The survey also finds, although 100 per cent mortgages have now been withdrawn by all lenders, seven per cent of first-time buyers going through the process already had such a deal in place.

This could prove to be a risky strategy in itself in a falling market, argues the organisation.

A further nine per cent of first-time buyers have dipped into an inheritance and five per cent are selling an item such as a car to get onto the ladder.

"There is a huge risk in taking out unsecured borrowings to raise a deposit as a first-time buyer. A small shift in prices and a change in circumstances can see someone losing their house - and financial security - very quickly," said Simon Preston, chairman of IAmMoving.com

"Using savings gives an important buffer against negative equity. Using unsecured loans and 100 per cent mortgages does not. In these cases the borrower needs to be very confident on their income and job security," he concluded.

Chris O'Toole