Wednesday, 24 February 2010

Cost of New Mortgages Fall to a Five Year Low

By Sunil Patel

Homebuyers have been having to part with less of their hard-earned cash to make mortgage interest repayments than at any time in the last five years, according to the Council of Mortgage Lenders.

The second lowest debt burden ever recorded by the CML – of only 10.6 percent of gross income – was required by 33,600 home movers in November 2009 compared to 11.1 percent in October.

There was also a significant drop in rates for 19,300 first time buyers, with 14.4 per cent of gross income needed in the same month, down from 15.1 percent from October.

CML director general Michael Coogan said, "It is encouraging to see that mortgage interest payments are so affordable for home movers and first-time buyers.

“However, with substantial deposits still needed to secure a mortgage, the market will continue to be relatively restrained for some time to come.”

Loans for new house purchases was at the highest level since 2001, figures from CML show it accounted for 60 percent of all new lending in November 2009.

Manager Ray Boulger, of mortgage advisors John Charcol, agrees the CML figures show interest rates are at an all-time low, “The lower the proportion of income required for interest repayments the more money consumers save for when the debt burden increases.”

The loans for remortgages market has collapsed, falling by almost 20 percent between January 2009 and November 2009.

This was due to a combination of factors, low-interest rates and tight lending criteria set by mortgage providers.

Mr Boulger believes fewer people are re-mortgaging their property due to fierce competition between lenders, he said: “Consumers feel it is not worth leaving a deal standard variable mortgage which typically have rates between 2.5 per cent to 3.5 per cent.”

The Financial Services Authority (FSA) introduced new rules in October, which made banks liable for all lending they authorise, so they would need to check their customers could afford the repayments.

The regulator has proposed a ban on self-certified mortgages, which are mortgage products where the customers declare their income without scrutiny from lenders.

Mr Boulger does not agree with the FSA proposal of lumping the banning of self-certified mortgages in with fast-track mortgages.

He said, “With fast-track lenders are able to offer competitive deals because it cuts out needless administration but if they are banned by the regulator it may mean the consumer are left with other more expensive mortgage products.”

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