Homebuyers struggle with affordability

Following this week’s pledge by the new Chancellor of the Exchequer to increase the availability of long-term fixed-rate mortgages, new data from the Council of Mortgage Lenders (CML) shows that short-term fixed-rate mortgages are as popular as ever.

According to the CML 89% of first-time buyers and 73% of those borrowing to move home took out fixed-rate loans in May 2007, the majority of the loans being short-term. The numbers compare with April figures of 88% and 72% respectively.

The data, which does not take into account interest rate rises in May and July, also shows that affordability issues are continuing to affect those new to home ownership, as well as existing borrowers.

In May the average first-time buyer borrowed 3.37 times income, the highest level ever recorded and up from 3.33 times in April.

For those entering the housing market, the proportion of income used to pay mortgage interest reached its highest level since 1992, in May, at 19.1% of income, compared with 18.7% in April.

In the case of home movers the average income multiple reached a record 3.03, up from 3.01 in April; the proportion of income used to pay mortgage interest also rose to 16.6%, from 16.3% in April.

In addition, first-time buyers are paying more in stamp duty. A record 60% of first-time buyers were liable to pay the tax in May 2007, up from 52% in May 2006.

Stamp duty also reached new heights with home movers too: 86% were liable in May 2007 compared with 82% in May 2006.

Michael Coogan, the Director General of the CML is advising borrowers securing fixed-rate loans to plan ahead for higher payments at the end of the fixed-rate term and to speak to their lender at the first sign of repayment difficulties.

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