Mortgage affordabilty at best for years (unsurprisingly)

Posted on 13 September 2010 by Drew

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Today’s mortgage lending figures from the CML provide further confirmation that there has been no follow through to the significant improvement, from a very low base, in the number of housing transactions from the nadir in the first quarter of last year. Current indications are that activity is unlikely to change much over the next few months.

In view of the controversy over the different figures being reported by the various house price statistics it is worth noting that, compared to a July 2009, the value of house purchase loans increased by 15%, whereas the number of loans increased by only 6%. The average LTV was marginally lower (up 1% at 76% v 75% for first time buyers (FTBs) but down 1% for the larger number of movers at 67% v 68%) and the combination of these figures implies an increase in the average value of properties bought with a mortgage over the 12 months to July 2010 of 8.5-9%.

It is also worth noting the huge improvement in affordability compared to 2 years ago. Whilst, in view of the large drop in interest rates, this is be expected for those with big deposits it also applies, albeit to a lesser extent, to FTBs. Over the last 2 years the proportion of income that movers spend on mortgage interest (N.B. interest payments, not total mortgage payments) has fallen from 17.0% to 9.6% and for FTBs from 19.8% to 13.2%. Actual mortgage payments for the majority who have a repayment mortgage will have fallen by less because as rates fall the capital repayment element of the monthly payment increases, but, even allowing for some future increase in interest rates, this adds weight to the argument that affordability is sufficiently good to prevent any significant house price falls.

The CML only covers about 94% of lending but its figures are always more helpful than those shown in the Bank of England press releases as the CML announces real figures, whereas the Bank of England hides away the real figures on its web site and only announces seasonally adjusted figures, which sometimes involve huge variations from the real figures.

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