First-time buyers in £6,000 of debt

Thursday, 28 September 2006 12:00

Three first-time buyers in four are in almost £6,000 worth of debt while saving for a deposit on a property.

New figures from Alliance & Leicester show that despite 70 per cent of potential first-time buyers saying they are saving for their deposit, some 75 per cent of them have outstanding debts.

And this is a contradictory position to be in.

There is almost no point to having savings while carrying debt - as interest charged on debts is almost always higher than the interest people receive on their savings.

In effect, this means first-time buyers are in fact losing money for every pound they pay into a savings account rather than paying off their debts.

"Our research reveals that while many first-time buyers are diligently saving for their deposit, some are not being as financially frugal as they could be," said Stephen Leonard, director of mortgages at Alliance & Leicester.

"Whilst buying a house can seem like a top priority, those looking to buy for the first time will find it worthwhile to pay off their outstanding debts first."

The average prospective first-time buyer is in £5,860 worth of debt.

And not only is this debt holding people back when saving for a deposit, but it could also affect how much money banks are prepared to lend you through a mortgage.

"Many lenders now use affordability calculations to determine how much they can lend someone and these calculations take into account outstanding debt and reduce the loan amount on offer accordingly," Mr Leonard said

"I would urge first-time buyers to be pragmatic about getting onto the housing ladder if they have outstanding debts. It would be advisable to try to avoid unnecessary debt and look to pay off any outstanding debts before they start saving for a deposit."

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