The Governor of the Bank of England, Mark Carney, says interest rates must rise to avoid a housing bubble developing.

The Bank of England has maintained interest rates at the record low of 0.5% since 2009 and is aware that this could create risks in the housing market.

Mark Carney’s main concern is not house prices but the level of indebtedness of first time buyers and homeowners could rise as property is the largest asset of the lenders and the mortgage the largest liability of UK households.

Highly geared mortgage households could spend a third of their income on repayments and this could reach a quarter of all remortgage buyers and home movers.

Recent changes by the Financial Policy Committee (FPC) will introduce a loan-to-income cap where lenders must have no more than 15% of mortgage applications approved with a multiple of 4.5 times income.

Homebuyer confidence at a low

According to the Halifax, their quarterly review of homebuyer confidence shows it has reached its lowest level for three years, particularly in London.

When asked if next year will be a good time to buy a property, 34% of first time buyers across the country agreed in the first quarter of the year. In the second quarter this had dropped to only 5% of first time buyers.

There has been an increase in the number of people that feel price is a concern rising from 20% last year to 35% now.

In particular first time buyers living in London and the South East had the lowest confidence whereas Scotland and the North East had the most confidence.

Help for first time buyers can come from family members as the equity release buyer can access wealth using a lifetime mortgage and gift the deposit on their first home.

House sales at their highest level

According to data from HM Revenue and Customs property sales in June reached 109,580 the highest level since 2007.

However, estate agent figures show that only 3% of homebuyers were aged from 18 to 30 years whereas 48% of buyers were aged from 31 to 40 years.

To take the first step of the property ladder, homebuyers  must have a much higher deposit as well as pay stamp duties make it more difficult for younger people to buy their first home.

Lenders must also apply tougher application checks to ensure the homebuyer can afford the mortgage repayments and also with a 3% rise in interest rates.

This applies to home movers and remortgage buyers as well as first time buyers, however, buy-to-let landlords as they must have a 25% deposit and show the rental income can exceed 125% of the mortgage interest.

What are your next steps?

Call our LCM mortgage brokers for advice if you are a first time buyer, want to remortgage your existing home for the best mortgage deal, moving home or are a buy-to-let investor.

Learn more by using the property value tracker chart, mortgage cost mortgage calculator and equity release calculator. Start with a free mortgage quote or call us and we can take your details.

For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your property for home improvements, holidays or even pay university fees for grandchildren.

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