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Two base rate cuts will help ease affordability, says CML

Affordability for first-time buyers worsened through 2007 but the Council of Mortgage Lenders believes the two base rate reductions since December will help to ease debt servicing burdens into 2008.

By December first-time buyers typically contributed 20.7 per cent of their income towards mortgage interest, compared with 17.9 per cent in December 2006.

The increase in typical income multiples for first-time buyers was slight by comparison: 3.38 in December 2007 compared with 3.34 in December 2006.

The CML says that its figures published today do not reflect the two recent reductions in base rates, or the expectations of future cuts, which will ease affordability constraints and the potential for payment shock.

Only 40 per cent of FTB mortgages in 2007 were for properties under the £125,000 stamp duty threshold, compared with nearly 50 per cent in 2006.

A record proportion of borrowers – 73 per cent – took out fixed-rate mortgages in 2007 to ensure certainty in their future monthly payments.

Gross lending grew by 5 per cent to £364 billion in 2007, from £345 billion in 2006.

Lending for house purchase declined in 2007, the number of loans fell by nearly 10 per cent to one million, while the value eased by 2 per cent to £155 billion.

Loans for house purchase numbered 62,000 in December, down by 22 per cent from 78,000 in November.

CML director general Michael Coogan says: “The decline in lending appears to be driven more by funding constraints than lower consumer demand.
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. 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.

“For first-time buyers, the combination of subdued house price inflation and lower mortgage rates means affordability should ease slowly as the year progresses.”

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