Interest payments consumed less income in November

Mortgage interest payments are consuming less of borrowers' incomes as those able to get a mortgage are stretching themselves less financially and beginning to benefit from reductions in bank rate, according to new data from the Council of Mortgage Lenders. Interest payments typically consumed 18.2% of a first-time buyer’s income in November, the lowest proportion since February 2007. Home movers in November typically spent 14.4% of their income on interest payments, the lowest proportion since April 2006.

Lenders have cautiously tightened their lending criteria as a result of the shortage of funding and falling house prices. The improvement in affordability is largely due to the fact that borrowers who are able to obtain credit are lower risk and less stretched.

There were 12,400 loans to first-time buyers worth £1.4 billion in November, compared with 15,400 loans worth £1.8 billion in October. The average first-time buyer put down a deposit of 18%, the largest it has been in 35 years of available data. And first-time buyers typically borrowed 3.07 times their income, the lowest level since September 2005.

There were 20,600 loans to home movers worth £3 billion, compared with 24,600 loans worth £3.7 billion in October. The average home mover deposit was 32%, the largest since November 2004. Home movers typically borrowed 2.71 times their income.

There were 33,000 house purchase loans worth £4.5 billion in November, the lowest level of activity since we began collecting monthly data in 2002. Gross lending declined 24% from October to £14.2 billion, and down 53% from November 2007.

Remortgaging declined by 25% from October to 52,000 loans worth £7 billion. We expect remortgaging to continue to fall in coming months as reversion rates are attractive relative to many new products on the market and borrowers with low levels of equity will have fewer remortgaging options.

An increased proportion of borrowers took out tracker deals (38%) anticipating the sharp decline in bank rate. Fixed rate deals still accounted for 52% of new products, albeit the lowest proportion since early 2005.

CML director general, Michael Coogan, said: "Limited mortgage funding and reduced consumer demand will weaken lending activity further in coming months. The flow of funds to the mortgage market will not improve this year without further intervention by government.

"Lenders are currently juggling attempts to help existing borrowers and savers, and maintain new lending and deposits. And the government too is facing the difficult decision of how to share out limited resources to help small businesses as well as the mortgage market's existing borrowers in difficulty and prospective borrowers shut out of the market.

"Any new policy measures to help existing borrowers, such as the home owner support scheme, must be mindful of unintended consequences on capital requirements for new lending. Any new measures, such as a government guarantee, to encourage new loans at higher loan to values will require enhancing funding availability at the same time.

“Affordability is improving for those who are able to access a mortgage, but saving for a deposit will still be a constraint for many would be first-time buyers. Borrowers who are benefiting from lower mortgage rates should over-pay if they can afford it to reduce their mortgage balance and protect themselves against falling house prices. And now is also a good opportunity for borrowers on interest only mortgages to switch to repayment mortgages to use this period of low interest rates to start to pay down their loans."