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Mortgages for contractors at five year low

freelancesupermarket.com newsroom

RSS 14 January 2010
According to the Council of Mortgage Lenders, the percentage of gross income needed to meet monthly interest payments fell to 12% in November last year.

That's the lowest level in five years and shows a drop from 14.4% on the same period in 2008.

The 33,600 movers who took out a new home loan during the month came out the best off. They borrowed an average of two-thirds of their new property's value and will spend just over 10.5% of their gross income meeting the interest payments on their mortgage.

November's figures were the second lowest since the Council began gathering data in 1974. The lowest recorded point was in the middle of 1996 when monthly interest repayments cost 10.2% of house buyers' gross income.

The 19,300 first-time home buyers who took out a mortgage in November are also winning. Their monthly mortgage repayments have dropped to 14.4% of gross income as opposed to 18.2% in the same month of 2008.

However, contractors who are first-time buyers do need to save for a large deposit before they can qualify for the low interest rates on offer with the average LTV mortgage standing at 75% compared to 83% on 2008.

The amount that first-time buyers borrow has also dropped. In 2007 they borrowed an average of 3.36 times their salary, but in November this had fallen to 3.09. The CML's director general, Michael Coogan, said it was "encouraging" that mortgages were so affordable. But he warned that the housing market is likely to remain subdued for some time due to the substantial deposits that mortgage lenders require.

The Council's figures also show that remortgaging continued to fall in November. The number of borrowers changing to a new deal fell by 6% from the previous month to 31,000. This is a drop of 39% on 2008, when interest rates first began to fall.

Over the last fortnight mortgage lenders have advertised a host of rate cuts. But these have been mainly targeted at people with short-term deals and large deposits. The Nationwide Building Society has just reduced the price of its two-year tracker to 2.64% on mortgages granted to people who could put down at least 30% as a deposit, whilst the Yorkshire Building Society said this week that it was launching its cheapest ever fixed-rate mortgage, 3.19% for one year, but it is only available to borrowers who have at least 25% to lay down as a deposit.

The Bank of England's benchmark interest rate has been at a record low of 0.5% since March last year due to the low inflation and record-long recession triggered by the global credit crisis.

Mortgage interest rates have fallen in tandem. Data from the UK banks and building societies shows that monthly interest rates of sterling SVR mortgages dropped to 3.98% at the end of 2009 from 5.38% at the end of 2008 and 7.68% the year before that.

The CML said loans for house purchase accounted for 60% of total new lending in November, the highest proportion since 2001. By contrast, the percentage of loans for remortgage has plunged to 31% of the total in November from 53% at the start of last year, it said.

Coogan also added that while interest rates remain low, remortgaging is not such an attractive option and the market is becoming more house purchase-focused like it was at the start of the Nineties.

© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.
Image: A little to the left. No, my left. by Loozrboy

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