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Monthly mortgage affordability best for eight years


Published: 14 December 2011 | Author: Bernard Clarke

Persistently low interest rates have helped reduce monthly mortgage interest payments to the most affordable levels for almost eight years.

Data we published on Friday shows that monthly interest payments for first-time buyers have continued to fall and now typically consume 12.3% of income, the lowest level since January 2004. The affordability of monthly interest payments for movers also improved, with this group paying an average of just 9.2% of income, the lowest level since monthly records began in 2002.

But 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. Our data shows that the size of deposit paid by a typical first-time buyer has remained stable for the last eight months at 20% of the price of the property.

Lenders advanced 44,500 loans for house purchase, worth £6.5 billion, in October, down from 48,200, worth £7.1 billion, in the preceding month. Lending for house purchase in October was also lower than a year ago, when firms advanced 46,900 loans, worth £6.8 billion.

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

The decline in house purchase lending affected both first-time buyers and movers. First-time buyers took out 16,400 loans, worth £2 billion, in October, down from 18,200, worth £2.2 billion, in September. Compared with October last year, however, borrowing by first-time buyers was virtually unchanged, down by just 1% by volume and unchanged by value.

There was a smaller decline in borrowing by movers in October, with 28,000 loans, worth £4.5 billion, down 7% by volume and 8% by value. Compared with October last year, borrowing by this group was down 8% by volume and 6% by value.

Despite the fall in borrowing by first-time buyers in October, we may see signs of increased activity by this group in the early months of next year, as we approach the end of the government’s stamp duty concession, due to expire on 24 March