Lowest mortgage costs since 2004, says CML

While borrowers still need large deposits to be able to enter the market, and overall lending remains constrained, both first-time buyers and home movers are benefiting from the lowest debt servicing costs since 2004, according to the latest monthly lending survey from the Council of Mortgage Lenders.

House purchase lending accounted for 35% of all mortgage lending in March, up from 31% in February and the highest proportion since December 2007.

Remortgaging, on the other hand, still accounted for a higher number of loans in March, but the number was only 8% higher than in February and 45% lower than in March 2008. The CML expects remortgaging to remain muted, both because of attractive reversionary rates automatically cutting in for many borrowers as they come out of their existing deals, and because of reduced remortgaging opportunities for those with reduced levels of equity as a result of falling house prices.

Table 1: Loans for house purchase and remortgage

Within house purchase lending, first-time buyers accounted for an increasing share - 40% of loans, up from 38% the previous month. This is the highest proportion since April 2005, although the absolute number of first-time buyers remains low - 12,500, up from 9,200 in February but well below the 17,800 recorded in March 2008 (not seasonally adjusted).

First-time buyers on average borrowed three times their income and 75% of the value of their property in March. Both these average measures were unchanged from February. For those with deposits large enough to enable them to buy, the combination of low interest rates and lower house prices mean that their monthly interest payment now equates to only 15.1% of their income, the lowest proportion since June 2004 (15.1%).

Table 2: Loans to first-time buyers

There were 18,900 home mover loans in the month worth £18.9 billion, up from £14.9 billion in February - an increase of 27%, but 34% down on March 2008. The average home mover loan was £115,000, compared with £135,000 in March 2008. Interest payments typically consumed 11.4% of a home mover’s income, the lowest proportion since January 2004 (11.4%).

Table 3: Loans to home movers

Commenting on the latest data, CML head of research Bob Pannell said:

"Because the flow of lending is still constrained, there is a sharp dividing line in the housing and mortgage markets between those who can raise a substantial deposit and those who can't.

"For those who can, the burden of debt payments is low and mortgage interest is consuming proportionately less income than for a number of years. This is good news for now. Even so, a mortgage is a long term commitment. People borrowing now should be mindful of the years ahead when interest rates eventually rise, as they will.

"But for those without substantial deposits, entering the market is still both difficult and uncertain. While there are some signs of demand increasing, house prices remain weak and lending criteria inevitably remain inherently conservative as lenders necessarily seek to rebuild their capital position."