First-time buyer mortgages at record stretch

First-time buyers stretched themselves to record levels with their mortgages in December, borrowing an average 3.31 times their income, the Council Mortgage Lenders (CML) reveals today.

This sees first-time buyers spending 17.9 per cent of their income on mortgage repayments.

The number of first-time buyers caught by the stamp duty threshold also increased, with 41 per cent of first-time buyers managing to avoid the tax in December (which applies to properties over £125,000) down from 44 per cent for the previous two months.

Despite this, the number of first-time buyer mortgages was up by 19 per cent across 2006.

The CML also reveals gross mortgage lending fell 14 per cent from November to December, but at £28.6 billion the number of secured loans was still the highest ever recorded for December.

"The monthly figures clearly show the cumulative effects of the gradual worsening in affordability for first-time buyers - and the ever-rising proportion of them who are caught by stamp duty," commented Michael Coogan, CML director general.

He added: "Although the mortgage market performed extremely well in 2006, the effect of rising interest rates and the continuing decline in affordability are likely to dampen activity somewhat in 2007."

Fixed-rate mortgages made up two thirds of mortgages in 2006, the CML finds, though it added the effect of recent rate changes and the pricing of fixed and variable rate deals may change popularity of this kind of mortgage.

Interest-only mortgages where the borrower had no specified repayment plan remained virtually same from 2005 to 2006, at 16 per cent.

"Given that the FSA's [Financial Services Authority's] recent research on interest-only loans concluded that those most vulnerable to problems with interest-only loans were new buyers with little equity, it is reassuring that there appears to be very little growth in interest-only loans to these types of borrowers," the CML concluded.