Increased affordability for many first time buyers due to interest rate cuts

 

March 4, 2008

Officials from the Council of Mortgage Lenders have recently stated that affordability for first time buyers could be increasing, with interest rates already having fallen twice in the last few months, and set to fall further over the course of this year. First time buyers saw affordability fall to its lowest in sixteen years last year, with the average first time buyer paying out close to 20% of their income on mortgage interest, which is the highest level since 1991.

Michael Coogan from the Council of Mortgage Lenders stated: “Affordability has been stretched further in 2007, but the recent base rate cuts and the expectation of future cuts will ease debt servicing burdens in 2008. For first-time buyers, the combination of subdued house price inflation and lower mortgage rates means affordability should ease slowly as the year progresses.”

He also stated: “The impact of payment shock on the large numbers of borrowers coming to the end of fixed-rate mortgages will also be less than we anticipated last year.”

It is thought that non-homeowners that are looking to get onto the property ladder will also benefit in terms of affordability, as falling house prices coupled with falling interest rates will make it possible for many more people to get onto the property ladder. Over recent years potential first time buyers have had to cope with soaring property prices as well as increasing interest rates, all of which have made it impossible for some to get their foot on the property ladder.

Mr Coogan also spoke about the declining levels of home loans, attributing this to tighter lending conditions and lower levels of demand. He said: “The decline in lending appears to be driven more by funding constraints than lower consumer demand.”

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