The latest survey from the Council of Mortgage Lenders (CML) revealed that 89 per cent of first-time buyers and 73 per cent of home movers took out a fixed-rate loan – albeit mostly on a short-term basis – in May, up from 88 per cent and 72 per cent respectively in April.
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The CML’s regulated mortgage survey also found worsening affordability continues to impact all home-buyers as well as existing borrowers.
And this data does not take into account either of the 0.25 per cent rate rises in May and July – so it is inevitable that affordability pressures will become even more pronounced in the coming months.
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First-time buyer income multiples reached their highest-ever level in May at 3.37 times the average first-time buyer income, up from 3.33 times in April. And, mortgage interest payments continued to rise, reaching 19.1 per cent, up from 18.7 per cent in April – their highest level since 1992.
Home movers also face increased affordability constraints. In May the average home mover income multiple reached a record 3.03 times, up from 3.01 times in the previous month. And, the proportion of income used to pay mortgage interest also jumped to 16.6 per cent from 16.3 per cent in April.
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With a new prime minister committed to improving access to affordable housing, it is worrying that more and more first-time buyers and home movers pay stamp duty. In May, a record 60 per cent of first-time buyers were liable to pay the tax, up from 52 per cent in May 2006.
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The number of home movers that paid stamp duty also reached a new record at 86%, up from 82 per cent in May last year. It should be high on the government’s new housing agenda to reduce the tax burden on buyers to offset the impact of increased mortgage costs.
CML Director General Michael Coogan said: “Affordability is becoming worse for anyone wanting to get a foot on the property ladder or move house. The record number of borrowers who are now paying stamp duty makes a difficult situation even worse, despite the financial windfall to the Treasury. This needs to be addressed urgently.
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“Taking out short-term fixed-rate mortgages may provide some reassurance, but eventually the loans will revert to a variable rate and the risk of a payment shock is real. Planning ahead for higher payments is as important as the initial decision to shelter from the risk of higher borrowing costs. Financial difficulties are set to rise so it is essential borrowers speak to their lender if they are having repayment difficulties to avoid becoming another arrears statistic.”
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