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Mortgage costs at five year low

Thursday 14th 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 by the Council of Mortgage Lenders (CML).

In particular, home movers are experiencing a low debt burden by historical standards. They typically needed only 10.6 per cent of gross income in November 2009 to cover mortgage interest payments, down from 11.1 per cent in October. Other than a brief low of 10.2 per cent 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 per cent of gross income needed in November, down from 15.1 per cent in October - the lowest it has been since May 2004.

Lending volumes saw a seasonal dip in November, but the number was an emphatic 66 per cent increase on November 2008. However, the 31,000 loans for remortgage fell six per cent from October with a drop of 39 per cent year on year, showing a continuation of the "two speed" market for house purchase and remortgaging.

Loans for house purchase in November accounted for 60 per cent 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 per cent 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 dropped from 53 per cent to 31 per cent in November.

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."

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