First time buyers take advantage of weak housing market

As the UK officially slid into recession on Friday, less pessimistic economists have identified an area of financial opportunity within the housing market.

Despite falling house prices affecting home owners and prospective sellers, figures released last week by BBC Radio 5 suggest that it is currently easier for first-time buyers to work their way up from the bottom of the property ladder than it has been for over half a decade.

The housing market has been more resistant against the economic downturn than the service sector, as high quality homes continue to be sold at high prices demanded by sellers. However, the recession is increasingly obliging owners to compromise, and therefore, lower the asking price.

Two-bedroom homes have lost approximately 12 per cent of their value since the financial crisis began last year; the most severe decline in value for any type of housing, particularly in comparison to one bedroom houses which have suffered a drop of eight per cent over the past twelve months.

Such a difference in the rate of change has made it appear more attractive for first or second time buyers to upgrade to larger homes.

David Kuo, head of personal finance at fool.co.uk explains that there are a lot of people who will have delayed buying their first property before the recession hit the housing market.

Mr Kuo said: “This is one opportunity that comes around once every ten tears and as far as they are concerned the best thing that can happen would be if house prices fell to a level where [first-time buyers] would be able to afford to get onto the housing ladder.”

As the economy continues to weaken, greater movement on asking prices is to be expected, as sellers finding it harder to resist the prevailing financial conditions are forced to reassess their own needs.

Fionnula Earley, Nationwide’s chief economist said: "While there will always be a rump of sellers who will need to move in order to accommodate job or family changes there will be others who are affected by economic conditions more acutely. So we should expect a moderation of price expectations on the part of sellers in a weaker economic environment.”

It is these sellers who are driving the change; many people may now be living beyond their means, and may be forced into downsizing to adjust to the new economic climate. With these people in need of cheaper housing, and so desperate to sell their current properties, the price gap between the two is lessening.