Mortgage affordability deteriorates for first time buyers

Mortgage advances to people buying a house fell for the first time in five months during August in a further sign that the property market is slowing down, figures revealed today.

A total of 65,400 loans were advanced to homebuyers in August, 3 per cent less than in July, according to the Council of Mortgage Lenders.
But despite the month-on-month dip, lending levels were still 8 per cent higher by number and 19 per cent higher by value than in the same month of 2013, making it the best August for house purchase lending since 2007.
The drop was most marked among first time buyers, with 28,900 mortgages advanced to people buying their first home in August, 4 per cent less than in July andthe first fall since January this year.
Affordability for first time buyers is becoming increasingly stretched on the back of recent strong house price gains, with the average person getting on to the property ladder borrowing 3.42 times their income, up from 3.37 times their pay 12 months ago.
The deterioration in affordability came despite the fact that the average amount first time buyers borrowed dropped to £126,198 in August, down from £127,500 in July.
But record low interest rates ensured repayments remained affordable, with first time buyers typically spending 19.7 per cent of their total pay on capital and interest mortgage payments, still significantly below the recent peak of 24.8 per cent reached in December 2007.
There was also a dip in remortgage activity during the month, although this is not unusual for the time of year.
There were 4 per cent fewer loans advanced to people moving to a new deal compared with July, while there was also an 11 per cent fall year-on-year.
Paul Smee, director general of the CML, said: “The lending climate had a glass half full, glass half empty feel about it in August.
“On the one hand it saw a decline in all lending types month-on-month, which would suggest a levelling off of the market.
“Yet, on the other hand, we saw the highest August house purchase lending levels since 2007, and the recent Bank of England Credit Conditions Survey expects an upward trend in remortgaging in the final months of the year.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said it was “curious” that remortgaging levels remained so weak despite the historically cheap rates currently available.
He said: “As these are not proving enough of a draw, it is unlikely that numbers will flock to remortgage until an interest rate rise is imminent.
“Some borrowers may be concerned about their ability to remortgage given the new affordability criteria and may find themselves stuck on their lender’s standard variable rate when rates do start to rise.”
The data came as the Royal Institution of Chartered Surveyors said the steam appeared to be coming out of the British property market as demand from potential buyers fell for the third month running, while the number of homes on the market remained broadly flat.
The group said house price momentum slowed to its lowest level since June 2013 in September, with surveyors predicting house prices will rise by 2.1 per cent during the coming year.