(1888PressRelease)
February 24, 2007 - In total, lenders agreed £28.6 billion worth of mortgage deals at the end of last year, according to the Council of Mortgage Lenders (CML), demonstrating that buyers were still in the mood to commit to house-buying despite the climate of rising interest rates.
And it appears that their gambles have paid off with the announcement today that inflation fell from 2.7 per cent to three per cent, assuaging the likelihood of rate rises in the near future.
The CML also revealed that interest-only loans increased in popularity over the course of last year and surprisingly, this was not driven by first-time buyers desperate to get on the property ladder.
Only 16 per cent of all of these loans were agreed with first-time buyers last year, compared to 15 per cent in 2005, possibly due to the extensive work and warnings issued by the FSA warning those that do not have sufficient equity against taking out such a high-risk mortgage.
This means there is a high possibility that buy-to-let investors were the group agreeing such deals as they normally have a larger degree of equity behind them, often in the form of an extended real estate portfolio.
Oliver Gilmartin, an economist from the Royal Institution of Chartered Surveyors, said: "The latest mortgage lending data indicates that demand activity in the housing market will remain firm in early 2007, despite three interest rate rises since August 2006.
"However, with affordability and accessibility continuing to deteriorate, first time buyers are increasingly stretching themselves."
The CML research revealed that first-time buyers' income multiples reached a record high of 3.31 and consequently the proportion of income spent of servicing their mortgage interest repayments jumped to 17.9 per cent.
However, 2006 as a whole showed that the number of first-time buyers increased by 19 per cent, illustrating that it was still a year with a high concentration of entrants into the property market.
Commenting on the figures, CML director general Michael Coogan said: "The monthly figures clearly show the cumulative effects of the gradual worsening in affordability for first-time buyers - and the ever-rising proportion of them who are caught by stamp duty.
"Although the mortgage market performed extremely well in 2006, the effect of rising interest rates and the continuing decline in affordability are likely to dampen activity somewhat in 2007."
