Page last updated at 15:07 GMT, Monday, 13 April 2009 16:07 UK

Property shock hits first-time buyers

By Andrew Verity
Propertywatch, BBC Two

Homes for sale
The fall in house prices has left many recent first-time buyers in negative equity

Once upon a time, people weren't bothered by the credit crunch.

In early 2007, the big issue on the lips of every well informed observer of the housing market was not falling house prices or the drought of mortgages.

It was something that then seemed a big worry but now seems, at first glance, almost non-existent: payment shock.

Payment shock

The worry was that tens of thousands of borrowers had taken on fixed rate mortgages in 2002 to 2005 when interest rates were relatively low.

Those fixed rates had kept their payments down and protected them from rate rises. But many were now coming off those fixed rate deals (typically lasting either two years or five years) onto the standard variable rates.

The Bank of England had been raising rates to ward off inflation.

Borrowers who had been protected from that by their fixed rates were in for a shock.

Because when they came off those deals, they would move from a fixed rate of say, 5%, to a variable one based on the Bank of England rates. In 2007 these were generally around 7.5%.

So their monthly payments might be half as much again. How then would they cope?

Misplaced worries

Dawn has been hit by higher mortgage costs because she is in negative equity

Is it possible to be nostalgic about your worries? How pleasantly modest that anxiety now seems.

Now the official bank rate is lower than it has ever been, just 0.5%, and the Bank of England is printing money, it is almost as if the policy makers are nostalgic for that other traditional worry, inflation.

When I started filming for Property Watch, a major reassessment of the housing market due to screen on BBC2 in May, I was convinced payment shock was a worry from the past.

With official rates so low, standard variable rates had been coming down.

Surely anyone coming off a fixed rate deal and now paying a variable rate now would pay less, not more?

Dawn's story

Then I visited someone I'd met once before, a first-time buyer called Dawn Burden.

I'd already met Dawn in August 2007 for an earlier series questioning over-inflated house prices, which went to air at exactly the time that house prices turned.

Property Watch will be broadcast on BBC Two from 11-14 May at 2000BST

But when I filmed her, the credit crunch was still in its infancy and seemed confined to the financial world.

Dawn was doing what we are all supposed to do - trying to be financially self-reliant and independent; aspiring to be a good citizen who owns her own home.

She was only 23 but keen to move out of home and have her own space and she was even prepared to spend her whole summer queuing for the chance of buying what seemed at the time like an affordable home.

It is people who bought recently - those who bought into the idea that property was a solid investment - who are hardest hit by price falls.

Back in 2007 a majority of the public even told us they thought that buying a house was safer than putting money on deposit.

Negative equity

Dawn is now in negative equity.

She doesn't like it, but she can deal with it as long as she can keep up the payments.

That was the scary bit.

Dawn is nearing the end of a two-year fixed rate deal at 5.8%. You might have thought she could switch to a tracker or a cheaper fixed rate deal and re-mortgage.

But she says she can't remortgage because she is in negative equity.

But surely, I asked, she would have cheaper monthly payments on her existing mortgage - because she would come off the fixed rate onto her existing lender's variable one?

No again. Dawn had borrowed at 95 per cent. That sort of borrowing is now regarded as high risk.

Far from falling, her rates were going to rise. She had checked with the mortgage lender. Her payments would go up to more than 7%.


Even with interest rates lower than they have ever been, Dawn, a conscientious, hard-working young woman, was going to struggle to meet a mortgage that was, from the start, a stretch.

Even with her sister helping to pay the mortgage, it was only just manageable and she wasn't able to buy many new clothes or go out much.

Dawn is still 25, a time when you should be having fun. But life isn't half as much fun as she would like.

How many other first-time buyers like Dawn are in the same position? Forced to pay premium rates when they come off their initial deals because they are now seen as high risk, when previously they weren't?

It is safe to say tens of thousands of them. And they are being punished in the credit crunch for nothing worse than stretching to buy a house.

Negative equity shouldn't matter if you can keep up your payments.

But it does seem hard on people like Dawn who have been conscientiously paying and going without to meet their mortgage that that their payments should go up because of a crisis of confidence in the banking sector that she could not reasonably have been expected to anticipate or guard against.

Lenders now offer golden deals to the older generation - those who have benefited from the property boom and can now afford a deposit.

But only a few promise to keep rates down for existing customers coming off deals.

However, if some lenders do, that means they can afford to - so why don't more of them do the same?

It does seem a shame that the relief that lower interest rates are supposed to provide are helping big buy-to-let landlords who have over-extended themselves for the sake of an investment - but not aspiring young homeowners like Dawn who just want a modest home of their own.

Cuts in interest rates have helped her segment of the property market not one jot.

BBC Two is planning a major series for May on property prices and the downturn called Propertywatch, which will be broadcast from 11-14 May at 2000 BST on BBC Two.

We would like to hear stories and views from as many different people as possible from all over the UK.

We are particularly looking for people who are in negative equity but desperately needing to sell their house and move for business or personal reasons.

If you are interested in taking part in the programme tell us your story using the form below. Your details will not be published but you might be contacted by the BBC, so please remember to include a phone number.

Your E-mail address
Town & Country
Phone number (optional):

The BBC may edit your comments and not all emails will be published. Your comments may be published on any BBC media worldwide.

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