Mortgage interest payments take up the largest proportion of income for 15 years, according to figures from the Council of Mortgage Lenders (CML).
The CML’s data also reveals borrowers are moving away from fixed rate mortgages in expectation of further rate cuts.
The CML’s data showed 68% of new mortgages were fixed rate deals in October, down from 72% in December, indicating many borrowers believe interest rates have peaked and they no longer need the security of a fixed rate.
Lending volume increased by 9% from £30.6bn to £33.5bn. However, the CML says many of these mortgages would have been approved before the problems at Northern Rock became apparent and lending is expected to be more subdued in the coming months.
Affordability has continued to deteriorate between September and October, with mortgage interest payments making up 17.6% of income, up from 17.5%, the highest level since 1992.
First time buyers are suffering the most from affordability issues, with the average first time buyer spending 20.6% of their income on mortgage interest, up from 20.4% in September.
However, borrowing ratios have come down, with the average first time buyer borrowing 3.36 times their income, down from 3.38, and the typical borrower borrowed 3.03 time their income, unchanged since September.
Michael Coogan, director general of the CML, says: "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.”
He says the latest cut in interest rates will be a relief to many borrowers who will come to the end of their fixed rate mortgages in 2007.
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