Mortgage affordability at an eight year high

The persistence of low interest rates has helped make monthly mortgage payments for first-time buyers the most affordable for nearly eight years, according to the latest figures released from the Council of Mortgage Lenders (CML).

The data shows that, although first-time buyers deposit requirements have remained stable in recent months at an average of 20%, their monthly interest payments have continued to fall and now typically consume 12.3% of income, the lowest level since January 2004. Affordability for movers also improved, with this group paying an average of 9.2% of income on mortgage interest, the lowest level since monthly records began in 2002.

However, despite the improved affordability of monthly mortgage payments, deposit requirements for borrowers and the uncertain economic outlook are continuing to bear down on lending activity. In October, 44,500 loans for house purchase (worth £6.5 billion) were advanced, down from 48,200 (worth £7.1 billion) in the preceding month and from 46,900 (worth £6.8 billion) in October 2010.

Although affordability of monthly interest payments for first-time buyers improved, average deposits for this group remained static for the eighth month in a row. Improved affordability for first-time buyers mainly reflects lower interest rates.

In October, the take-up of repayment mortgages increased yet again, to 97% for first-time buyers and 83% for movers.

Commenting on the data, Paul Smee, CML director general, said: "Despite the fall in lending in October, it is possible that we will see signs of increased activity by first-time buyers in the early months of next year, as we approach the end of the government’s stamp duty concession at the end of March. The underlying picture of the market overall, however, is level, albeit at low levels of lending activity."