Mortgage interest payments at highest level in 15 years

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by Kay Murchie

According to a recent study by the Council of Mortgage Lenders (CML), the proportion of first-time buyer’s incomes paid out on mortgage interest rose to 18.7% in April 2007 - at their highest level for 15 years.

Four bank rate increases since summer 2006, along with high prices have together raised the portion of first-time buyer income used for mortgage interest up from 16.3% in April 2006.
Homeowners have also been affected, paying out the biggest amount of income on mortgage interest in 15 years, with the level increasing to 16.3% in April.

The CML figures only refer to the level of income needed to service mortgage interest payments and the added cost of a repayment mortgage pushes the proportion of average income used for a £125,000 mortgage up by about 6%. The effect of the last decade’s increase in house prices has also massively increased the size of debt that homeowners are taking on.

In April 1992, the figures show that the average mortgage size was just under £40,000 with borrowers having an average single or joint income of £18,000. However, in April 2007, the average mortgage size was £125,000 with borrowers having an average single or joint income of nearly £41,000.

88% of first-time buyers are signing up for a fixed rate mortgage as worries about further interest rate rises may push them heavily into debt. In addition, an increasing amount of first-time buyers are having to pay stamp duty.