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Proportion of income needed for new mortgages at five-year low

Published: 14 January 2010

Home buyers in November needed to use less of their income to cover their mortgage interest than at any time for more than five years, according to new data released today by the Council of Mortgage Lenders.

In particular, home movers are experiencing a low debt burden by historical standards. They typically needed only 10.6% of gross income in November 2009 to cover mortgage interest payments, down from 11.1% in October. Other than a brief low of 10.2% in the middle of 1996, this is the lowest debt burden on home movers since the CML started recording this data in 1974.

The debt burden on first time buyers also reduced, with 14.4% of gross income needed in November, down from 15.1% in October - the lowest it has been since May 2004.

Table 1: 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

November 2009

33,600

5,000

67%

2.79

10.6%

Change from October 2009

-5%

+4%

66%

2.75

11.1%

Change from November 2008

+67%

+67%

70%

2.77

14.4%

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

November 2009   19,300  2,200  75%  3.09  14.4%
Change from October 2009 -2% n/c  75%  3.08  15.1%
Change from November 2008  +62%  +69%  83%  3.12  18.2%

Lending volumes experienced a seasonal dip in November. Even so, although the 53,000 house purchase loans represented a 4% decline on October, the number was an emphatic 66% increase on November 2008. On the other hand, the 31,000 loans for remortgage fell 6% from October with a drop of 39% year on year, showing a continuation of the "two speed" market for house purchase and remortgaging.

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
 
November 2009 53,000 7,200 31,000 3,700
Change from October 2009 -4% -3% -6% -8%
Change from November 2008 +66% +64% -39% -46%

Loans for house purchase in November accounted for 60% of total new lending, the highest proportion since 2001. While the share of house purchase activity has grown considerably from the record low of 27% seen at the start of 2009, low interest rates and tight lending criteria have meant that remortgage demand has gone in the opposite direction. From January 2009, the percentage of loans for remortgage has dropped from 53% to 31% in November.

Commenting on the data, CML director general Michael Coogan said:

"It is encouraging to see that mortgage interest payments are so affordable for home movers and first-time buyers. But with substantial deposits still needed to secure a mortgage, the market will continue to be relatively restrained for some time to come.

"With refinancing still unattractive or unnecessary for many borrowers due to continuing low rates, we are now seeing a much more house purchase-focussed market, a profile much more like the beginning of the Noughties than its latter years."

Notes to editors

1. Source: CML/Banksearch.

2. The December RMS data will be released on Friday 12 February 2010.

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