House price fall could 'imprison' first-time buyers
House price fall could 'imprison' first-time buyers
Monday, 08 Oct 2007 09:45
A fall in house prices could leave first-time buyers "imprisoned in their homes".
That is according to personal finance website Fool.co.uk, which warns a dip in house prices could see buyers with 100% mortgages unable to move up the housing ladder.
This is because the estimated one in 20 first-time buyers who have this kind of mortgage could end up in negative equity - when the value of the loan is higher than the property itself.
This would mean in order to sell their home a first-time buyer would have to pay back the mortgage lender the difference in value between the property and the loan, effectively imprisoning them until their property was worth more than their mortgage.
"Borrowers on 100% mortgages need to be aware stagnant house prices may keep them shackled to their uncompetitive lender and prisoners in their own home until house prices rise again," commented David Kuo, head of personal finance at Fool.
"However, they can tip the scale in their favour by ensuring they choose repayment mortgages rather than the cheaper interest-only options. They should also overpay their mortgage as often as they can afford.
"This will ensure they are regularly chipping away at their debt. And with more equity in their homes, their choice of mortgage providers improves too.
He concluded: "100% mortgages are supposed to provide first-time buyers with a helping hand onto the housing market. But in a market where house prices stagnate or fall, what providers give with one hand may be taken back with the other when the mortgage deal ends."