The cost of a mortgage reaches a new low

Mortgage lenders have reported that the cost of having a mortgage has never been so low as a proportion of household income.

The Council of Mortgage Lenders (CML) said the cost of having a mortgage fell to its lowest ever level in September for both homemovers and first-time buyers. The amount borrowers pay on capital and interest repayments on their mortgage as a percentage of household income dropped to 17.6%.

The CML said that home movers and first-time buyers benefited after the Bank of England cut the base rate of interest to 0.25% in August. The Bank cut rates to try and shore up the economy after the vote to leave the EU.

The CML said its members had then cut their own rates helping reduce the cost of mortgage repayments for homemovers to 17.7% of their household income and to 17.8% for first-time buyers.

Mortgage lending recovered by 2.8% in November compared to October, rising to £21bn, and is up by 3% on 12 months ago, new figures published today by the CML show.

However, the CML has revised down its lending forecasts for 2017 to reflect economic uncertainties and the tax and regulatory changes that will affect the housing and mortgage markets such as higher stamp duty costs and changes to mortgage interest tax relief for landlords.

It now expects to see gross mortgage lending of £248bn in 2017, down from £261bn and £252bn in 2018, with net lending of £30 billion in each of those years.

CML director general Paul Smee said: Overall, the mortgage market remains resilient but is likely to plateau rather than grow much for the next couple of years.

“Property transactions look set to drift down slightly, although we do not expect house prices to fall, and net lending seems unlikely to get above £30 billion next year.

“We expect any modest strengthening in home-owner lending to be rather offset by a less active house purchase market in buy-to-let, as both tax and regulatory changes bite on landlords.”

However, the property market has remained resilient in recent months and has recovered from the lows seen in August following the aftermath of the Brexit vote.

The Bank of England reported that mortgage approvals for house purchases reached a 7-month high in October, up to 67,518, though still 7.4% down on January’s peak of 72,944, while RICS reported that buyer enquiries rose for the third successive month, albeit at a modest rate of increase.

Howard Archer, Chief UK Economist at HIS Global said: “While the likelihood of another interest rate cut has recently diminished and some lenders have recently pulled their cheapest mortgages, we suspect that rates will not rise for a considerable time to come.”

Meanwhile, yesterday the CML published its latest report on mortgage lending, which fell by 11% in October compared to a year ago, down to £10.5bn borrowed for residential property sales.

Lending to homemovers fell by 18% year-on-year to £5.9bn, lending to first-time buyers was down by just 2% to £4.5bn but the biggest drop was in lending to buy-to-let landlords, down 21% to £3bn.