Mortgage payments are lowest for seven years

Published 11th Sep 2009

Mortgage repayments have fallen to the lowest level in seven years, breathing new life into the property market.

Families are now paying an average of 29 per cent of their disposable income to cover the home loan each month.

This is down from 48 per cent two years ago.

Figures revealed by the Halifax also showed house prices continued to rise in August.

Those with tracker home loans have seen big falls in repayments, following the decision by the Bank of England to cut the base rate to a record low of 0.5 per cent.

However, many others have not benefited from the decline in the rate, banks have failed to pass on lower borrowing costs to other mortgages such as fixed and standard variable rate deals.

The BoE held the base rate at 0.5 per cent yesterday, amid speculation it will remain low well into 2010.

Separately, the inter-bank lending rate, known as Libor, which is used to set interest on variable deals, has fallen to just 0.64 per cent - the lowest it has been since the credit crunch struck.

Swap rates, which determine the cost of fixed rate mortgages, have also fallen in the past month.

The figure for five-year swaps came down from 3.79 per cent on August 7 to 3.34 per cent at the end of last month.

There have been some signs in recent days that banks and building societies are finally prepared to pass on these lower costs to customers.

Last week HSBC unveiled a discount tracker deal charging 1.99 per cent, while yesterday Nationwide announced a raft of cheaper home loans.

The UK's biggest building society said it is cutting rates on 29 of its products by up to 0.5 per cent. However, the cost of some other deals will go up by 0.2 per cent.

Despite the positive news on cheaper mortgages, there is still a serious shortage of new deals on the market.
Morthage

Banks are continuing to ration the best value home loans to those with an unblemished credit history and a hefty deposit.

First-time buyers who manage to find a mortgage will be paying significantly more than the average 29 per cent of their disposable income.

Recent surveys have picked up a rise in the number of new mortgages approved.

The Halifax said yesterday that the lower cost of meeting mortgage payments is giving a boost to the whole housing market.

Its figures show that prices rose 0.8 per cent in August to stand at £160,973.

Halifax housing economist, Martin Ellis, said: 'Demand for housing has increased since the start of the year due to better affordability and low interest rates.

'This, together with low levels of property available for sale, has boosted house prices over the last few months.'

Ray Boulger, of brokers John Charcol, said he now expects house prices to rise by 6 to 7 per cent over 2009.

'Most of the house price statistics are now recording price increases. 'The longer that prices keep rising, the more confidence returns to potential buyers,' he said.

'The expectation that interest rates will remain low for longer than most people expected ...is good news for the housing market.'

Source: ' Daily Mail '

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