The cost of a mortgage as a proportion of household income has reached an historic low although there is no increase in house purchase activity.

Data from the Council of Mortgage Lenders (CML) showed mortgages are more affordable with the cost as a proportion of household income at an all time low for first time buyers and home movers.

For first time buyers mortgage costs have reduced to 17.8% of income compared to 18.1% a year ago and for home movers this is 17.7% down from 18.3% last year.

Paul Smee, director general of the CML said mortgages are more affordable partly due to the repricing of mortgages following August’s base rate cut to 0.25%.

This should help turn strong appetite for home-ownership into a reality as we approach the closing months of the year.

Mortgage costs likely to rise

The election of Donald Trump to US President could see an  increase in mortgage repayment costs for UK homebuyers for certain products.

Donald Trump is promising tax cuts and greater infrastructure spending and this is likely to result in the US central bank the Federal Reserve increasing interest rates at a faster rate than expected.

The swap rate in the UK is the cost for banks to borrow cheap money they lend to you as a fixed rate mortgage and these have increased since the Trump win.

Swap rates react to expectations of future interest rates and inflation, which affect the price of mortgages and in particular longer term fixed rate mortgages with higher rates of products being withdrawn.

For remortgage buyers this could be an opportunity to secure a longer term fixed rate mortgage such as five years rather than two years whiles rates are historically low.

Lower mortgage costs has seen higher activity with equity release buyers accessing wealth in their property using a lifetime mortgage for home and garden improvements.

Mortgage approvals lower this month

According to the CML, the number of loans for first time buyers and home movers has reduced 4.7% compared to August and the value of the loans is also lower by 6.5% at £11.4 billion this month compared to £12.2 billion last month.

Mr Smee said, while there was a decline in house purchase lending in September compared to a month before, this is the highest volume of loans and most amount borrowed in the month of September since 2007.

There has been a slowdown in new purchases for buy-to-let investors after changes to stamp duty tax and taxation allowance on mortgage interest gradually introduced over 4 years from April 2017.

Even so, mortgage approvals for house purchases increased 2.9% over the year from 61,100 in September 2015 to 62,900 in the same period this year.

The third quarter has seen an improvement with the value of loans 15.8% higher at £34.3 billion compared to the second quarter of £29.6 billion.

Also the number of loans in the third quarter have improved up 11.7% to 187,500 from 167,500 in the second quarter.

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.

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 give to a family member.

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

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