Equity release and first time buyer mortgage customers could benefit from credit crisis

30 April 2008 / by Daniela Gieseler
The media is full of doom and gloom about the dire consequences of the credit crunch for consumers, but some people might still benefit from the current crises.

Those looking for a first time buyer mortgage are desperate to get on the property ladder; but many have had to bury their dreams for the moment because they do not have a deposit and 100 per cent mortgages have been scrapped. Despite this, they should actively make use of the current situation, experts have said.

"With the current levels of uncertainty and volatility surrounding the mortgage industry and the housing market, maybe it's worth sitting on the sidelines and saving that 10 per cent deposit until the stormy clouds blow over," Andrew Hagger of Moneyfacts recommends.

"Savings rates available are currently at a seven year high," he continues, "if property prices were to fall by 15 per cent in the next 18 months, then those who are itching to get their foot on the housing ladder could benefit from a double whammy of very high savings rates and the falling cost of that elusive first property."

He also points out another positive side effect: "By saving regularly over 18 months, you will prove to yourself and more importantly any prospective lender that you are capable of affording a monthly mortgage repayment of a similar amount."

Also, those who already own a home and want to release cash to make the most of their retirement might be able to profit from the fact that the equity release business has remained fairly stable despite the credit crunch.

Although there was a slight downturn in demand last year and the sales volumes fell by 13 per cent in the first quarter of 2008, SHIP – the leading UK body for equity release providers – believes that this will only be a short-term slip caused by initial fears of how the credit crunch might affect consumers.

Equity release product providers and intermediaries have indeed reported that inquiries have picked up since then, which will be reflected in the next quarter's figures.

Andrea Rozario, Director General of SHIP (Safe Home Income Plans), comments: "Given the changes that have occurred in the wider mortgage market over the last 6 months, equity release volumes have faired fairly well and have certainly been much more resilient than their counterparts in the mainstream mortgage market.

"Looking forward, the fundamental drivers of demand for equity release are as robust as ever – an ageing population, a decline in pension provision, and a large proportion of people's wealth tied up in their property. Equity release is set for significant long term growth whatever the prospects may be for the mainstream market."

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