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Mortgages in October most affordable for almost eight years

09 Dec 11

Mortgages in October most affordable for almost eight years

The persistence of low interest rates has helped make monthly mortgage payments for first-time buyers the most affordable for nearly eight years, according to figures released today from the Council of Mortgage Lenders.

The data shows that, although first-time buyers' deposit requirements have remained stable in recent months at an average of 20%, their monthly interest payments have continued to fall and now typically consume 12.3% of income, the lowest level since January 2004. Affordability for movers also improved, with this group paying an average of 9.2% of income on mortgage interest, the lowest level since monthly records began in 2002.

However, despite the improved affordability of monthly mortgage payments, deposit requirements for borrowers and the uncertain economic outlook are continuing to bear down on lending activity. In October, 44,500 loans for house purchase (worth £6.5 billion) were advanced, down from 48,200 (worth £7.1 billion) in the preceding month and from 46,900 (worth £6.8 billion) in October 2010.

Table 1: Loans for house purchase and remortgage

 Number of
house purchase
loans
Value of house
purchase loans
£m
 
Number of
remortgage
loans
 
Value of
remortgage
loans, £m
 
October 201144,500 6,50028,9003,600
Change from September 2011-8%-8%-15%-16%
Change from October 2010-5%-4%-1%n/c

Loans for remortgaging totalled 28,900 (worth £3.6 billion) in October, down from 34,200 loans (worth £4.3 billion) in September and 29,100 loans (worth £3.6 billion) in October last year.

The decline in house purchase lending affected both first-time buyers and home movers. First-time buyers took out 16,400 loans, worth £2 billion, in October, a 10% reduction from September’s total of 18,200 (9% down in value from £2.2 billion). Compared with last October, however, borrowing by first-time buyers was down by just 1% (with no change in lending by value).

Table 2: First-time buyers, lending and affordability

 

Number of
loans

Value of
loans
£m

Average
loan to value

Average
income multiple

Proportion of
income spent on 
interest payments

October 201116,4002,00080%3.2012.3%
Change from September 2011-10%-980%3.2412.7%
Change from October 2010-1%n/c80%3.2413.3%


Movers experienced a smaller drop from September, with the 28,000 loans (worth £4.5 billion) taken out in October, down 7% by volume and 8% by value. But, compared to first-time buyers, there was a larger decline for this group from October 2010 – down 8% by volume and 6% by value.

Table 3: Home movers, lending and affordability

 

Number of
loans

Value of
loans
£m

Average
loan to value

Average
income multiple

Proportion of
income spent on 
interest payments

October 2011

28,000

4,500

69%

2.89

9.2%

Change from September 2011

-7%

-8%

69%

2.90

9.4%

Change from October 2010

-8%

-6%

68%

2.87

9.7%


Although affordability of monthly interest payments for first-time buyers improved, average deposits for this group remained static for the eighth month in a row. Improved affordability for first-time buyers mainly reflects lower interest rates.

In October, the take-up of repayment mortgages increased yet again, to 97% for first-time buyers and 83% for movers.

Paul Smee, CML director general, commented:

"Despite the fall in lending in October, it is possible that we will see signs of increased activity by first-time buyers in the early months of next year, as we approach the end of the government’s stamp duty concession at the end of March. The underlying picture of the market overall, however, is level, albeit at low levels of lending activity."

Notes to editors

1. The Council of Mortgage Lenders' members are banks, building societies and other lenders who together undertake around 94% of all residential mortgage lending in the UK. There are 11.2 million mortgages in the UK, with loans worth over £1.2 trillion.

2. Source: CML Regulated Mortgage Survey.

3. The Council of Mortgage Lenders does not publish statistics for mortgage approvals. The data in our monthly Regulated Mortgage Survey and gross lending press releases relate to mortgage advances only. A mortgage approval is the firm offer to a customer of a specific amount of credit secured against a particular property. A mortgage advance is the total amount of loan actually provided to the buyer, by the lender. Please see the mortgage statistics timeline on our website for further information.

4. The November 2011 data will be released on Monday 16 January 2012.

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