There was a move away from fixed-rate mortgages in October, with levels of new fixed-rate loans falling to 68 per cent from 72 per cent in September. Fixed-rate loans have been popular throughout 2007 with levels consistently at or above 70 per cent. But the trend towards variable rate loans may increase in coming months as the expectation of further interest rate cuts lessens the need for borrowers to lock in and guard against rate rises.
Mortgage affordability continued to deteriorate in October as interest payments consumed the highest levels of income in over 15 years. First-time buyers contributed 20.6 per cent of their income towards mortgage interest, up from 20.4 per cent in September and the highest level since 1991, and movers contributed 17.6 per cent, up from 17.5 per cent in September and the highest level since 1992. The Bank of England's rate reduction of 0.25 per cent will provide some relief to borrowers in coming months.
Lending volumes remained strong in October totalling £33.5 billion, a 9 per cent rise from £30.6 billion in September and £30.6 billion a year ago. The majority of these loans are likely to have been approved before the full impact of the credit crunch and the problems associated with Northern Rock took hold. Lending is expected to be more subdued in coming months as mortgage approval numbers are showing.
Home movers typically borrowed 3.02 times their income, unchanged from September, whilst first-time buyers typically borrowed 3.36 times their income, down from 3.38 in September.
Commenting on the figures, CML director general Michael Coogan said: "October is the last month we expect lending volumes to be higher than a year ago as lenders and borrowers will behave more cautiously in an uncertain and slowing market environment. Lenders have already responded to the credit squeeze by tightening lending criteria and increasing some loan costs. And looking ahead, any uncertainty in the housing market may mean that borrowers are less willing to stretch themselves financially. However, overall, in the coming months we expect the lending figures to be driven more by supply factors rather than lower consumer demand.
"For those customers coming to the end of their fixed rate mortgage in 2008, the potential impact of higher monthly payments will be diminished by the fall in bank rate this month and other rate reductions to come early in the New Year."
