The average first time buyer is now paying a deposit of 18 per cent of the property's value – the highest amount ever, according to the Council of Mortgage Lenders' records, but the percentage of people's income spent on their mortgage interest payments has decreased.
Mortgage interest payments are eating up less of borrower's incomes as the benefits of four consecutive cuts in interest rates start to be seen, and the cost of living climbs back down from last year's peaks when fuel bills
rose 40 per cent in eight months.
Interest payments accounted for 18.2 per cent of a first time buyer's income in November, the lowest proportion since February 2007, the CML
found, and home movers were also enjoying the lowest income-mortgage interest payments ratio since 2006, at 14.4 per cent.
Furthermore, first time buyers
borrowed 3.07 times their income in November, the lowest level for four years, which implies that borrowing conditions might be easing as house prices fall, but it also reflects that the buyers able to secure a mortgage
are those with larger deposits who do not need to borrow as much.
And the improvement in affordability has largely come about because of mortgage providers
restricting their lending criteria, which means that homebuyers and movers currently largely consist of those who are less stretched financially, present less of a risk, and are therefore able to put down larger deposits in return for lower rates.
The CML's data also reveals that borrowing has continued to fall amongst first time buyers, who were approved for 12,400 mortgages in November 2008, worth £1.4billion, compared to 15,400 loans worth £1.8billion the month before.
There were 33,000 house purchase loans in November, worth £4.5billion, the lowest volume since the CML began collecting monthly data in 2002, with gross lending declining 24 per cent compared to October, and down 53 per cent on November 2007 figures.
A savvy 38 per cent of mortgage customers anticipated the fall in the Bank of England base rate and opted for tracker mortgages
; the majority still favour stability, with 52 per cent choosing a fixed rate mortgage
, but this still represents the lowest proportion for four years on fixed rates.
"Limited mortgage funding and reduced consumer demand will weaken lending activity further in coming months." warned CML director general, Michael Coogan, adding that "The flow of funds to the mortgage market will not improve this year without further intervention by government."
Mr Coogan encourages those who are benefitting from falling interest rates and lower monthly mortgage repayments to overpay on their home loan in order to reduce their mortgage balance and protect themselves from falling house prices.
© Fair Investment