Borrowing costs should ease this year, lenders say
The number of new mortgages granted to home buyers slumped to just 62,000 in December 2007, according to the Council of Mortgage Lenders (CML).
The figure was 35% lower than at the same point a year ago.

With just 225,000 such mortgages lent between October and December, it meant that lending was at its lowest winter level since 1995.

The CML said the decline was partly due to the increased costs of repaying a mortgage and tighter lending policies.

But the CML said things should become easier for home buyers this year.

"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," said the CML's director general Michael Coogan.

"For first-time buyers, the combination of subdued house price inflation and lower mortgage rates means affordability should ease slowly as the year progresses," he added.

Boom ends

Successive rate rises between August 2006 and July 2007 finally started to squeeze the life out of the long boom in house prices that started back in the mid 1990s.

The impact of payment shock... will also be less than we anticipated last year

Michael Coogan, CML

Combined with prices that had been rising far faster than incomes for more than a decade, the higher costs of borrowing prompted a sharp slowdown last year in the number of people able to buy a home.

The CML figures show that for first-time buyers in December, interest payments as a proportion of income stayed at 20.7%, the highest level since the middle of 1991.

They also had to borrow 3.38 times their incomes, a near-record level.

The CML's figures also reveal that the number of people remortgaging, which means staying put but taking out a new mortgage deal, has also fallen sharply.

There were just 59,000 such mortgages granted in December last year, the lowest figure for any month for at least six years.

With interest rates now coming down as a result of the two rate cuts since last December, lenders are now a bit less pessimistic about the prospects for this year.

"The impact of payment shock on the large numbers of borrowers coming to the end of fixed-rate mortgages will also be less than we anticipated last year," said Mr Coogan.