Mortgages 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 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 £7.1billion) in the preceding month and from 46,900 (worth £6.8billion) in October 2010.

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 £2billion, in October, a 10% reduction from September’s total of 18,200 (9% down in value from £2.2billion). Compared with last October, however, borrowing by first-time buyers was down by just 1% (with no change in lending by value).

Movers experienced a smaller drop from September, with the 28,000 loans (worth £4.5billion) 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.

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, said: “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.”