Mortgage affordability hits five-year high - CML

Home buyers in November used a smaller percentage of their income to cover their mortgage interest than at any time in the past five years, according to the Council of Mortgage Lenders (CML).

Homeowners typically needed only 10.6% of gross income in November 2009 to cover mortgage interest payments, down from 11.1% in October.

Other than a brief low of 10.2% in mid 1996, this represents the lowest debt burden since the CML began recording the data in 1974.

The debt burden on first-time buyers also reduced, with 14.4% of gross income needed in November 2009, down from 15.1% in October - the lowest since May 2004.

Although lending volumes experienced a seasonal dip in November, with house purchase loans down 4% on the previous month, this represented a 66% increase on November 2008. House purchase loans still accounted for 60% of total new lending; the highest proportion since 2001.

Loans for remortgageing also fell, down 6% from October, representing a decline of 39% year on year, as low interest rates and more stringent lending criteria saw demand for remortgaging slow down considerably.

From January to November 2009, the percentage of loans for remortgaging purposes  dropped from 53% to 31%.

CML director general Michael Coogan says: "It is encouraging to see that mortgage interest payments are so affordable for home movers and first-time buyers. But with substantial deposits still needed to secure a mortgage, the market will continue to be
relatively restrained for some time to come.

"With refinancing still unattractive or unnecessary for many borrowers due to continuing low rates, we are now seeing a much more house purchase-focussed market, a profile much more like the beginning of the Noughties than its latter years."