Good in a crisis

Posted by: Jules Birch

12/07/2010

As tenants assess their chances of becoming ‘casualties’ of the cuts, there is one group of people who’ve never had it so good with their housing costs.

Thanks to the record low interest rates introduced in the wake of the credit crunch, mortgage costs for home movers are currently lower than at any time since records began in 1974. 

A survey by the Council of Mortgage Lenders (CML) shows that mortgage payments take up just 9.5% of their income in May. That proportion has been below 10% for the last five months. To put that in perspective, payments peaked at 17.9% at the end of 2007.

First-time buyers are doing pretty well too - provided they can get a mortgage in the first place. Their home loan costs fell to 13.2% of their income in May compared to over 20% in 2007. However, that’s still higher than between 1994 and 1996 and 2002 and 2003, thanks to high house prices and higher interest rates charged on higher loan-to-value mortgages. 

House purchase lending is still rising slightly, with mortgages up 15% in volume and 28% in value since last May. However, the CML says much of that reflects the boost from the stamp duty holiday at the end of last year and it expects lending to lose momentum as the austerity measures start to bite and that its forecast for gross lending in 2010 may be over-optimistic.

With arrears and repossessions also up far less than had been feared, the majority of homeowners have done well out of the financial crisis so far. However, with warnings of a second credit crunch, rising unemployment and cuts to support for mortgage interest rates on the way, how much longer can that last? 

And any increase in interest rates would generate sharp increases in those mortgage cost figures. One member of the Bank of England’s monetary policy committee voted for a rise at the meeting in early June but the big question is whether the scale of the austerity measures in the Budget will be enough to persuade the other members to keep rates low. Could bad news for tenants on housing benefit once again be good news for people with a mortgage?