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16th Jan 2009
Mortgage lenders tell borrowers to overpay
Mortgage lenders tell borrowers to overpay
Mortgage lenders today advised homeowners to overpay their loans to protect from falling house prices.
The Council of Mortgage Lenders (CML) has advised those benefiting from lower rates as a result of cuts to reduce their mortgage balances, as it warned of tougher times ahead.
Its advice came as it released new figures showing the number of homebuyers hit another record low in November, despite mortgage rate cuts and property becoming increasingly affordable.
CML director general Michael Coogan said: 'Borrowers who are benefiting from lower mortgage rates should over-pay if they can afford it to reduce their mortgage balance and protect themselves against falling house prices.
'And now is also a good opportunity for borrowers on interest only mortgages to switch to repayment mortgages to use this period of low interest rates to start to pay down their loans.'
The CML data, released today, showed just 33,000 mortgages for home purchases in November, down 59% on the same month the previous year and 68% on the peak of 103,000 in August 2007.
This was the lowest level of activity since the CML began collecting monthly data in 2002, and the last three months of 2008 are on course to register the lowest number of homebuyer mortgages since 1974 - the year quarterly data began to be published.
Mortgage affordability improved in November as house prices continued to fall, with interest payments consuming 18.2% of an average first-time buyer's income and 14.4% of an average home mover's income.
For first-time buyers this left properties at their most affordable since February 2007, while for home movers they were the most affordable since April 2006.
The size of the average mortgage taken out by first-time buyers has fallen to £100,000 from £116,500 a year ago, with homes typically purchased with an 18% deposit of £18,000, at 3.07 times single or joint income of £33,800.
This compares to the average first-time buyer purchase being made with a 10% deposit of £11,650, at 3.35 times single or joint income of £35,000, in the same month a year earlier.
However, despite the fall in the size of mortgages taken out and income multiples, the need for new homeowners to save an extra £6,350 for a deposit and stricter lending criteria has contributed to the number of first-time buyer mortgages falling 57% year-on-year, to just 12,400 in November.
Mr Coogan said: 'Affordability is improving for those who are able to access a mortgage, but saving for a deposit will still be a constraint for many would be first-time buyers.'
He added: 'Limited mortgage funding and reduced consumer demand will weaken lending activity further in coming months. The flow of funds to the mortgage market will not improve this year without further intervention by government.'
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