Mortgage debt servicing lower Friday, 15th May 2009

According to the latest monthly lending survey from the Council of Mortgage Lenders, First-time buyers and home movers are benefiting from the lowest debt servicing costs since 2004,despite borrowers still needing large deposits to be able to enter the market, and overall lending remains constrained.

Uup from 31% in February and the highest proportion since December 2007,house purchase lending accounted for 35% of all mortgage lending in March,

On the other hand, remortgaging, still accounted for a higher number of loans in March, but the number was only 8% higher than in February and 45% lower than in March 2008.

Because of attractive reversionary rates automatically cutting in for many borrowers as they come out of their existing deals, and because of reduced remortgaging opportunities for those with reduced levels of equity as a result of falling house prices the CML expects remortgaging to remain muted.

First-time buyers accounted for an increasing share - 40% of loans, up from 38% the previous month.
First-time buyers on average borrowed three times their income and 75% of the value of their property in March. Both these average measures were unchanged from February.
The combination of low interest rates and lower house prices mean that their monthly interest payment now equates to only 15.1% of their income, the lowest proportion since June 2004 (15.1%),for those with deposits large enough to enable them to buy.Because the flow of lending is still constrained, there is a sharp dividing line in the housing and mortgage markets between those who can raise a substantial deposit and those who can't.

For those who can, the burden of debt payments is low and mortgage interest is consuming proportionately less income than for a number of years. This is good news for now. Even so, a mortgage is a long term commitment. People borrowing now should be mindful of the years ahead when interest rates eventually rise, as they will.