First-Time Buyer Affordability Worsens

The latest figures from the Council of Mortgage Lenders (CML) suggest that it is getting harder for first-time buyers to get on the property ladder. First-time buyers now have to spend an average of 20.4% of their monthly income on mortgage interest payments, the highest level for 16 years.

In September there were 28,400 loans to first-time buyers, down from 34,800 in August as would-be borrowers struggled to find affordable properties.

The CML held high interest rates to blame, and hoped that they had now reached their peak. CML director general Michael Coogan said: “Higher interest rates are now beginning to slow the housing market. The Bank of England’s decision not to reduce rates earlier this month will have disappointed many borrowers. Looking forward, affordability is likely to continue to constrain buying activity, which we expect to remain subdued.”

The gross figures for all mortgage lending were also down in September – to £30.6bn, from £34bn in August.

This is further evidence of the cooling UK housing market, and first-time buyers seem to be holding back from entering the market, borrowing £3.8bn in September, down from £4.7bn in August. The figures mean that the average first-time mortgage was £118,750, down slightly from its September level of £119,000.

The CML also calculated that affordability had become harder for home movers. Now, their mortgage interest payments take 17.5% of their income; it was 17.3% in August, and it’s the worst figure for 15 years.

Those moving house took out 52,400 loans worth £8.9bn in September, showing a sharp fall from the August when 68,000 loans were approved totalling £11.5bn. According to the CML remortgaging activity was still robust at £11.1bn, up slightly from the previous month, while buy-to-let totalled £6.8bn, the same level as in August.

Earlier in the week figures from the Royal Institution of Chartered Surveyors (RICS agreed with the CML view that buyers were feeling the effects of higher rates and the credit squeeze. The latest RICS survey of members in England and Wales showed that house prices fell for the third month in a row during October, and quicker than for more than two years.