Affordability could increase for first time mortgage payers

According to the Council of Mortgage Lenders, things could start easing up financially for first time buyers over the coming months, with interest rate cuts making it easier for this group to afford mortgage repayments.

Last year saw affordability for first time buyers fall to a sixteen year low, with first time buyers paying the highest level of income on mortgage interest since 1991.

Reports show that last year the average first time buyer was paying 19.4% of their income on mortgage interest, which was the highest level in sixteen years, with first time buyers having paid 21.8% of their income on mortgage interest in 1991.

It is thought that the interest cuts that have already been applied as well as those expected over the course of this year.

There has been a marked slowdown in the housing market over recent months, with property prices falling but also lenders tightening their belts when it comes to offering mortgage, which has resulted in lower lending levels.

Michael Coogan from the Council of Mortgage Lenders stated: “The decline in lending appears to be driven more by funding constraints than lower consumer demand.”

One official said: “Affordability has been stretched further in 2007, but the recent base rate cuts and the expectation of future cuts will ease debt servicing burdens in 2008. For first-time buyers, the combination of subdued house price inflation and lower mortgage rates means affordability should ease slowly as the year progresses.”

He also said that the payment shock for those coming off cheap fixed rate mortgages over the coming months would not be as severe as first anticipated due to the decreased interest rates, adding: “The impact of payment shock on the large numbers of borrowers coming to the end of fixed-rate mortgages will also be less than we anticipated last year.”