Affordability worsens for first-time buyers

Higher interest rates are causing first-time buyers to spend more of their income on mortgage interest payments, according to the Council of Mortgage Lenders (CML).

Data from the regulated mortgage survey revealed that first-time buyers in March spent an average 18.3% of their income on mortgage interest payments, compared to 18% in February and 16% in the same month last year. The rise, which largely reflects increases in interest rates, means that the proportion of first-time buyers' income consumed by mortgage payments is the highest figure since 1991.

The survey also found that first-time buyer income multiples have edged up over the past year to 3.31 times the average first-time buyer income - up from 3.30 in February and 3.15 times in the same month in 2006.

The increasing costs of home-ownership are clearly deterring many potential first-time buyers from getting on to the property ladder. While the number of first-time buyers increased in March to 33,100 from 26,100 in February, their number was down by 8% on the same month last year.

But the data shows that first-time buyers are seeking to protect themselves from future increases in interest rates. The survey revealed that 88% of first-time buyers - the highest proportion ever - chose a fixed-rate product, compared to 87% in the previous month. Fixed-rate mortgages continued to remain the most popular mortgage product in March, accounting for a record 78% of all loans, up from 75% in February.

Commenting on today's data, CML director general Michael Coogan said: "With a rise in interest rates widely expected later this week it is encouraging that those first-time buyers who are getting a foot on the property ladder are opting for fixed-rate products.

"Affordability constraints continue to be a barrier to home-ownership for many first-time buyers. Mortgage lenders are trying to help by offering innovative products where appropriate but will want to ensure lending remains prudent."