Mortgages Costing an Arm and a Leg

At this point in time Mortgages are costing the most they have done for 16 years. This doesnâ t bode well for borrowers but more so for new home owners and the Mortgage Lenders Council warns it may get worse before it gets better.

The MLC recently reported that the current lending market has exposed affordability problems due to rising interest rates and house prices. It is estimated that mortgage interest for moving houses can take up to 17.6% of income, with new home owners costing even more at 20.6% of their pay packet being taken by interest on mortgages.

Apart from this there are stormier waters ahead unfortunately, with the recent credit squeeze it is becoming harder to actually get a mortgage as lenders begin to tighten their belts.

With lending totals rising by  2.9bn to  33.5bn this September compared to last year. This has seen lenders becoming stricter with their criteria for lending to try and stem this rise. Howard Archer, chief UK economist at analysts Global Insight said: 'The CML reported that loans for house purchases edged back up to 82,900 in October, after falling markedly to 80,400 in September from 102,700 in August. Nevertheless, mortgage approvals were still down 16.5% year-on-year in October.â

The record high has also been attributed to uncertainty in the housing market which may mean borrowers are less willing to stretch themselves financially. The report highlights the struggles first time buyers are experiencing when buying a home and has explained why so many new mortgages have been taken out for new home owners.

The shortage of supply, increase of housing and people not needing to sell will support the market over the coming year but house prices could be set to fall dramatically in a year. The biggest risk to mortgage borrowers though is that the economy slows and unemployment rises. This would bring about more people having to sell their homes due to them being unable to make the repayments.

With recent drops in bank rates hopefully lenders will act accordingly and lower their rates too, but for those finishing their term with fixed rate mortgages in 2008 they will be less shocked by the rise in monthly repayments due to the drop in rates and other rate reductions expected in the New Year.

Keywords: