Mortgage Costs Are Highest For 16 Years
The largest portion of earnings is being paid out toward mortgage interest by homeowners in the last 16 years, and struggling borrowers are warned by lenders that things are going to get a lot tougher.
Figures from the Council of Mortgage Lenders have revealed how the impact of affordability is hitting the UK property market.
The amount of take-home pay taken up by mortgage interest has gone up with higher interest rates and rising house prices, and reached 17.6% in October - its highest level since 1992.
First-time buyers have it even worse. For them the percentage of their monthly money taken up by mortgage interest is 20.6%.
The CML accompanied the figures with a grim warning that homeowners may begin to struggle to even get a mortgage as lenders tighten their own lending criteria. One forecast suggests that October 2007 will be the last month of mortgage lending growth on a year-comparison basis. In October mortgage lending was up to £33.5bn, compared with £30.6bn in October 2006, and in September 2007.
Most loans included in these high October figures were approved prior to the crisis which unfolded at Northern Rock. Since then lenders have grown more unwilling to lend without borrowers adhering to strict criteria, as the credit crunch became apparent and has taken a firmer grip on the nation’s finances since.
Director general at CML, Michael Coogan, said: "October is the last month we expect lending volumes to be higher than a year ago as lenders and borrowers will behave more cautiously in an uncertain and slowing market environment. Lenders have already responded to the credit squeeze by tightening lending criteria and increasing some loan costs. And looking ahead, any uncertainty in the housing market may mean that borrowers are less willing to stretch themselves financially.
"However, overall, in the coming months we expect the lending figures to be driven more by supply factors rather than lower consumer demand. For those customers coming to the end of their fixed rate mortgage in 2008, the potential impact of higher monthly payments will be diminished by the fall in bank rate this month and other rate reductions to come early in the New Year."
Chief UK economist at analysts Global Insight, Howard Archer, said: "The CML reported that loans for house purchases edged back up to 82,900 in October, after falling markedly to 80,400 in September from 102,700 in August. Nevertheless, mortgage approvals were still down were down 16.5% year-on-year in October. The CML data highlight the serious struggles that home buyers - especially first-time buyers - are facing to afford a house."
Archer agreed that a shortage of supply, increasing numbers of households thanks to immigrants and lone dwellers, plus the fact that people may not need to sell would support the market over the coming year. However, there was the risk of a sudden fall in prices.
He said: "There is undeniably a very real - and growing danger - that the housing market could see a sharp correction next year. Probably the biggest risk is that the economy slows sharply over the coming months and unemployment starts rising significantly. This would be liable to lead to a marked increase in the number of people having to sell for distressed reasons, particularly given the extent to which many households have had to stretch themselves to the limit to buy a house."
Published on December 13, 2007
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