Mortgage costs fall to five-year low

The cost of servicing a mortgage fell to its lowest level in five years in November, figures showed today, with the biggest winners being home movers. Figures from the Council of Mortgage Lenders (CML) show falling interest rates and house prices, and lenders' demands for larger deposits mean those buying a new home in November would spend 12% of their gross income on monthly interest repayments. Best off were the 33,600 movers taking out new mortgages during the month. They borrowed an average of 67% of their new property's value and spend 10.6% of their gross income covering the interest on their home loans. This compares with 14.4% in November 2008, and is the second lowest figure since the CML started collecting data in 1974. The lowest point was reached in the middle of 1996 when monthly interest repayments accounted for 10.2% of home movers' gross income. First-time buyers have also seen their monthly mortgage repayments drop, with the 19,300 taking out mortgages in November facing a monthly mortgage repayment equal to 14.4% of their pay, compared with 18.2% in November 2008. However, these buyers still face having to build up a large deposit before they can take advantage of the low interest rates on offer. Although some lenders have come back into the market with 90% loan to value (LTV) mortgages, the best deals are targeted at those with the most equity. The average loan advanced to a first-time buyer stood at 75% LTV in November, compared with 83% the previous year. In 2007 when the housing market was at its peak, first-time buyers were borrowing an average of 90% of their property's value. Income multiples have also dropped. In 2007, first-time buyers borrowed an average of 3.36 times their salary, but in November the figure stood at 3.09. The CML's director general, Michael Coogan, said it was "encouraging" that mortgage interest costs were so affordable. But he added: "With substantial deposits still needed to secure a mortgage, the market will continue to be relatively restrained for some time to come." Continuing low rates The CML's figures show remortgaging activity continued to slump in November, with the number of borrowers switching to a new deal falling 6% from October to 31,000. The figure marks a drop of 39% on the previous year, when interest rates were starting to fall. Coogan said: "With refinancing still unattractive or unnecessary for many borrowers due to continuing low rates, we are now seeing a much more house purchase-focused market, a profile much more like the beginning of the noughties than its latter years." Over the past two weeks mortgage lenders have announced a flurry of rate cuts. However, the biggest reductions have been to short-term deals targeted at those with large deposits. Last week, Nationwide building society cut the cost of its two-year tracker to just 2.64% for loans up to 70% LTV, while this week Yorkshire building society said it was launching its lowest ever fixed-rate mortgage, a one-year deal at 3.19% for borrowers with at least 25% to put down as a deposit. Ray Boulger of mortgage adviser John Charcol said rates were being driven down by increased competition among lenders and a change in the way loans were being funded. "Lenders are far less dependent on swap rates for their new funding, rather [they are] looking towards their savers to balance the books," he said. "It is also John Charcol's belief that lenders are becoming more comfortable with the wider economy, most notably the bounce in house prices and the expectation that interest rates will remain low for some time, resulting in far less repossessions than initially expected."