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11 December 2007

Mortgages most expensive for 16 years

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by Lin Freestone

Mortgages most expensive for 16 years

The Council of Mortgage Lenders has issued figures today that reveal the cost of mortgages is at its most expensive for 16 years. The largest proportion of earnings since 1992 is being paid by homeowners on mortgage interest.

Higher interest rates and rising house prices raised the percentage of take-home pay eaten up by mortgage interest for those moving home to 17.6% in October 2008. First-time buyers paid out 20.6% of their monthly pay packet on mortgage interest.

The CML has warned that mortgages will soon be more difficult to obtain. The full impact of the Northern Rock crisis is still to be felt as the majority of loans in the CML figures had been approved before the failure of the bank.

October 2007 is predicted to be the last month that mortgage lending grows year-on-year, when mortgage lending reached £33.5bn. The lending figure was £30.6bn in September, and also in October 2006.

Lenders and borrowers will behave more cautiously in an uncertain and slowing market environment. However, in the coming months it is expected that the lending figures will be driven more by supply factors rather than lower consumer demand.

For customers coming to the end of their fixed rate mortgage in 2008, the potential impact of higher monthly payments will be diminished by the fall in bank rate and other rate reductions expected to come early in the New Year.

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