First-time buyer income multiples reached their highest level ever in July at 3.24 times the average income, according to new data from the Council of Mortgage Lenders (CML). This was up from 3.21 times the average income in June, and 3.06 times in the same month last year.
Today's data also reveals that first-time buyers mortgage interest payments as a percentage of their income have increased for the fourth consecutive month to 16.7 per cent. This is up from 16.5 per cent in June, and just below the 16.8 per cent achieved in the same month last year, but is in line with levels experienced in 2004 and 2005.
Income multiples and the proportion of income used to service mortgage interest payments may continue to rise in the coming months, reflecting the Bank of England's decision in August to raise interest rates. In July the average first-time buyer mortgage was £110,500 and the quarter percent increase in interest rates would have added an extra £17.40 a month to mortgage payments.
Today's data also shows a fall in the number of people taking out fixed-rate loans in July, and this is caused by higher pricing. In July, fixed-rate deals accounted for 65 per cent of all loans (127,300) - down from 68 per cent in June (140,600). The average interest on a fixed-rate loan stood at 5.11 per cent in July, up from 5.06 per cent in June. This was the sixth consecutive pricing increase.
Tracker loans however saw an increase of 15 per cent in July, and accounted for 23 per cent of all new loans (44,600).
Commenting on today's new data, CML Director General Michael Coogan said:
‘First-time buyers are continuing to find ways of getting a toehold on the property ladder, showing just how popular home-ownership is to many young people. But higher income multiples, coupled with higher interest payments as a proportion of income, suggests that they are continuing to stretch themselves to do so.’
‘It is essential first-time buyers, and all borrowers, look at their finances ensure they are taking sensible steps to ensure their debts are manageable, especially as the markets are expecting a further interest rate rise later this year.’