Mortgage borrowing levels improve

Date:

Monday 12th July 2010

There was a was a rise in the number of mortgage loans issued to house hunters in May, fuelled by record-low interest rates, the Council of Mortgage Lenders (CML) has announced.

Around 42,000 new home loans were issued in May, up 2% compared to April and 15% higher than May 2009, according to fresh data released by the CML.

Mortgage interest payments in relation to the proportion of a home movers' income is at a 35-year low, CML added. Just 9.5% of average income was spent on mortgage interest payments in May.

There were 27,100 loans issued to those people moving home in May. This was up 2% on the previous month, and 19% higher than the same month a year ago.

With most people opting to stay on the cheaper standard variable rates, the number of people remortgaging in May was still 14% lower than in May 2009. However, the 26,000 loans granted was 6% higher than in April.

CML director general Michael Coogan said that a temporary rise of the threshold at which purchasers must pay stamp duty - £250,000 for first-time buyers - had led to activity picking up, but he expects lending levels to drop in the second half of 2010.

"With the government's austerity drive picking up momentum we are unlikely to see a repeat of those buoyant numbers this year," Coogan commented.
Lending for home purchases has risen for 11 consecutive months.

A number of first-time buyers, who are able to raise a significant deposit, are also benefitting from cheap mortgage rates.

Interest payments accounted for 13.2% of their income, the lowest since March 2004. However, finding a large deposit is still proving difficult for many people.

In May, first-time buyers typically borrowed 75% of the value of the property, at an average of 3.14 times their income. According to house price data from the Land Registry in May, this would put the cost of a 25% deposit at £41,328.

The CML is expected to downwardly revise its initial estimate that mortgage lending would total £150bn in 2010.