Soaring interest rates are forcing struggling first-time buyers to spend a higher proportion of their income on mortgage interest payments.
Figures issued today by the Council of Mortgage Lenders reveal that affordability is at its worse level for 16 years for potential homeowners.
Meanwhile, the latest Woolwich affordability survey shows average mortgage payments in England and Wales reached £590 in April, an increase of £78 over the year.
The CML’s regulated mortgage survey shows first-time buyers spent an average 18.3% of their income on mortgage interest payments in March.The figure is slightly up from February’s 18% level – but has increased considerably in the last 12 months from 16% in March 2006.
The rise, which mirrors the recent increases in interest rates, means the proportion of first-time buyers' income eaten up by mortgage payments is the highest figure since 1991.
"Affordability constraints continue to be a barrier to home-ownership for many first-time buyers," Says CML director general Michael Coogan.
He points out the increasing costs of home-ownership are clearly deterring many potential first-time buyers from clambering on to the property ladder.
While the number of first-time buyers increased in March to 33,100 from 26,100 in February, their number was down by 8% on the same month last year.
But there’s good news, he adds. The data shows first-time buyers are seeking to protect themselves from future increases in interest rates by snapping up fixed rate loans. Almost nine out of 10 first-time buyers – 88 %, the highest proportion ever - chose a fixed-rate product in March.
"With a rise in interest rates widely expected later this week it is encouraging that those first-time buyers who are getting a foot on the property ladder are opting for fixed-rate products,” says Coogan.
Meanwhile, the average household is now spending 19.9% of their take home pay on mortgage payments, says the Woolwich, the highest figure since the bank started recording the data in January 2002.
“Mortgage borrowers are really getting squeezed,” says Andy Gray, head of Woolwich Mortgages.
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