The Council of Mortgage Lenders (CML) believed that the cuts, which took Base Rate from 5.75 per cent to 5.25 per cent, would ease affordability constraints and the potential for payment shock.
First-time buyer affordability worsened throughout last year, with the typical borrower contributing 20.7 per cent of their income towards interest on their mortgage.
Meanwhile only 40 per cent of first-time buyer mortgages last year were for properties under the £125,000 Stamp Duty threshold, compared with nearly 50 per cent in 2006.
Fixed rate mortgages were as popular with first-time buyers, with 73 per cent of borrowers taking one out in 2007 to ensure certainty in their future monthly payments.
Take-up dropped towards the end of 2007 – 64 per cent in December compared with a peak of 77 per cent in June and July – in anticipation of the Base Rate reductions.
CML director-general, Michael Coogan, said: “The decline in lending appears to be driven more by funding constraints than lower consumer demand.
"Affordability has been stretched further in 2007 but the recent Base Rate cuts and the expectation of future cuts will ease debt servicing burdens in 2008.
“For first-time buyers, subdued house price inflation and lower rates means affordability should ease slowly as 2008 progresses.”
Rob Clifford, chief executive at Mortgageforce, said: “While there is no question that a rate reduction is great for first-time buyers, it is still not bridging the affordability gap. The reality is that first-time buyers cannot get mortgages with the income multiples they need to buy in their locality.”
