- 10
- Jul
Prospective first-time buyers and homemovers alike are looking to fix their monthly mortgage repayments, new figures reveal.
Research carried out by the Council of Mortgage Lenders (CML), the number of those taking out a fixed-rate product increased over May. During the month, 89 and 73 per cent of first-time buyers and existing homeowners respectively opted to fix their secured loan payments - in comparison to the 88 and 72 per cent noted in April. However, following the decision by the Bank of England’s monetary policy committee (MPC) to increase the base rate both in May and July, the CML claimed that borrowers - even those who have opted for a fixed-rate deal - are set to find pressure on their personal finances increasing over the coming months.
Statistics from the council indicated that mortgage interest payment levels for first-time buyers reached 19.1 per cent over the course of May - the highest figure recorded since 1992. Meanwhile, those looking to get on to the first rung of the property ladder were reported to be taking a secured loan worth an average of 3.37 times their annual income. Not only was this up from the multiple of 3.33 recorded in April but is also the highest-ever figure noted by the CML. Existing homeowners were reported to face “increased affordability constraints” as 16.6 per cent of their annual pay goes towards mortgage costs.
Stamp duty has also been reported to be a growing area of financial pressure on consumers. During May the greatest-ever proportion of homemovers (86 per cent) had to pay the fee, up from 82 per cent noted in April. Just under two-thirds (60 per cent) of first-time buyers were also said to now be liable for the duty, again a record figure.
Michael Coogan, director general for the CML said: “For anyone wanting to get a foot on the property ladder or move house, each month affordability is becoming worse. The record number of borrowers who are now paying stamp duty makes a difficult situation even worse, despite the financial windfall to the Treasury.”
He added that although taking out a short-term fixed-rate deal can provide some temporary relief, borrowers were made aware that in time their mortgage costs “will revert to a variable rate and the risk of a payment shock is real”. Consequently, Mr Coogan advised that it was important for consumers to plan sufficiently for a rise in their monthly repayments. “Financial difficulties are set to rise so it is essential borrowers speak to their lender if they are having repayment difficulties to avoid becoming another arrears statistic,” the director general claimed.
Commenting on the figures, Oliver Gilmartin, senior economist from the Royal Institution of Chartered Surveyors, warned consumers against presuming that the MPC will not raise the base rate of interest in the near future. “With first-time buyers more vulnerable to rising interest rates than those with an equity cushion any attempts to raise the stamp duty threshold would be welcomed as affordability for those at the bottom has worsen at a faster pace”, he said. Mr Gilmartin added that about two million borrowers set to come to the end of their short-term fixed-rate deals are set for financial “hardship”.
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