Houses are more affordable

Alliance & Leicester’s (A&L) Borrowing Monitor shows that people are increasingly confident to take on mortgage borrowing, particularly to move home. At the beginning of this year, 7 per cent of households said they were thinking of moving, buying a property for the first time or remortgaging by mid summer.

When questioned recently, 15 per cent of households – more than double the January level – said they planned to do so before next winter. Although not everyone acts upon these plans, A&L believes that the change in intentions underscores this year’s much higher activity levels in the housing market.

First time buyers accounted for over a third (38 per cent) of new mortgages between January and March according to the Council of Mortgage Lenders (CML) and the appetite among first-time buyers is growing.

Alliance & Leicester’s latest figures show that the proportion of under 30s planning to get on the housing ladder has increased by a third since January – up from 12 per cent to 16 per cent.

The latest figures show that by the end of April the total value of mortgage debt in the UK was £999.2 billion and rising at £9 billion a month, meaning that it almost certainly now exceeds the £1 trillion mark for the first time.

However, despite record mortgage borrowing, affordability for those taking out new mortgages remains at similar levels to a year ago – and far better than it was in 1990, the year of Britain’s debt crisis.

In the first quarter of 2006, for those taking out a new mortgage, interest payments took up 14 per cent of household income – the lowest it’s been since the second quarter of 2004. In 1990 mortgage interest took up nearly double this level – 27 per cent.

Overall, the average outstanding mortgage in the UK rose 9.6 per cent to £85,992 in the first four months of 2006 compared to the same period in 2005. Affordability, however, remains unchanged, due to lower interest rates and higher incomes.

10 per cent of income was spent on mortgage interest costs, the same as in the first four months of 2005 and far less than the 24 per cent in 1990. In 1990 total mortgage payments including capital took around a third of household income, (33 per cent for new mortgages) whereas today this is around a fifth (20.5 per cent). Today pressure on household budgets is coming far more from council tax increases and higher utility bills rather than from mortgages.

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