Mortgages at lowest costs since 2004

According to the Council of Mortgage Lenders (CML) first time buyers and home movers are benefiting from the lowest mortgage costs since 2004.

Whilst this is good news, the issue is that to benefit from these low mortgage costs, the best mortgage rates are only available for low LTV mortgages – for those with a large deposit.

For first time buyers who can raise the necessary deposit,  their average mortgage interest payment now equates to 15.1% of their income, the lowest proportion since June 04.

For home movers, the mortgage interest payments typically account for 11.4% of their income, again the lowest proportion since June 04.

In March, first time buyers on average borrowed 3 times their income and with a 25% deposit.

As Bob Pannell, head of reseach at the CML, commented ‘Because the flow of lending is still constrained, there is a sharp dividing line in the housing and mortgage markets between those who can raise a substantial deposit and those who can’t.’

He added ‘For those without substantial deposits, entering the market is still both difficult and uncertain. While there are some signs of demand increasing, house prices remain weak and lending criteria inevitably remain inherently conservative as lenders necessarily seek to rebuild their capital position.’

Whilst the number of first time buyer loans was up from Feb, it is still low at only 12,500 compared with the 17,800 for March 08.

Equally the number of remortgage loans at 40,000 was up 8% from Feb but this is still 45% down on the number in March 08.

There are some hopeful signs that mortgage lenders are starting to relax their lending criteria slightly, or at least offer better deals with smaller minimum deposits.

In line with this, from tomorrow, Abbey is increasing the Loan to Value (LTV) on its fixed rate mortgages.

The issue remains though that the number of mortgages available for people with a low deposit is small, yet the demand is much higher.

The lenders have been stung by their lax lending criteria and are largely set on ensuring they don’t get caught again by requiring significant equity in a property to protect themselves.

Is the question though not much more about proving and ensuring that the borrower can meet the mortgage repayments, rather than concentrate so heavily on how much equity there is in the property?