Mortgage costs fall to all-time low as average monthly repayment drops to £494 a month

  • Low interest rates allow lenders to offer some of their best ever deals
  • Borrowers could face a tougher struggle to meet lending criteria this year

By Anthony Bond
Updated: 05:33 EST, 13 January 2012


Homeowners are benefiting from the cheapest ever mortgage deals with the average monthly repayment now just £494 a month.

Low interest rates have enabled lenders to offer some of their best ever deals.

However, there are warning signs that borrowers will face a tougher struggle to meet lending criteria this year.

Good news: Homeowners are benefiting from the cheapest ever mortgage deals with the average monthly repayment now just £494 a month

Good news: Homeowners are benefiting from the cheapest ever mortgage deals with the average monthly repayment now just £494 a month

Mortgage payments in England and Wales averaged £494 a month or 15.4 per cent of home owners' take-home pay last year, making deals at their most affordable for a decade, according to recent research from Barclays Capital.

The proportion stood at its lowest since the records began 10 years ago, falling from a peak in 2008 when monthly mortgage bills swallowed up more than a fifth of take-home wages.

The Barclays study also suggested that most homeowners could cope with the Bank of England raising the base rate from its historic 0.5 per cent low.

It found that 83 per cent of homeowners would have room for manoeuvre should interest rates, or their circumstances, change.

Just under three-quarters of those studied said they had a plan in place for when interest rates started to rise, with around a third of these planning to cut 'lifestyle' spending, including clothes, holidays and eating out, to offset increases, Barclays said.

Room for manoeuvre: A new study also suggested that most homeowners could cope with the Bank of England, pictured, raising the base interest rate from its historic 0.5 per cent low

Room for manoeuvre: A new study also suggested that most homeowners could cope with the Bank of England, pictured, raising the base interest rate from its historic 0.5 per cent low

Earlier this month, the Bank of England predicted that lenders would increase their mortgage ranges further, but cautioned that this would be offset by tougher lending rules.

The Bank's latest credit conditions survey found lenders were planning to launch more innovative deals, particularly for those who have smaller deposits.

This could help first-time buyers, who have found themselves trapped in the rental sector and fell to their lowest proportion of the housing market for nearly three years in the autumn of 2011.


How mortgage availability has changed in recent years

Different times: How mortgage availability has changed in recent years

However, lenders also predicted that the credit scoring criteria for granting loan applications would be tightened in the first three months of 2012 amid wider economic uncertainty and the fallout from the eurozone crisis, meaning loan approvals could drop.

HOUSE SALE FAILURES ARE UP BY A THIRD

More than half a million house sales fell through in the final months of 2011, up by a third on the start of the year, according to a study.

Online conveyancing service In-Deed.net said that in the last half of the year, it became more likely that a transaction would fail than go through.

Growing numbers of buyers were giving up through 'sheer frustration', even though half of them lost an average of £5,500, said the report.

The main reason sales didn't go ahead was difficulties securing a mortgage, made worse by 'declining' service standards among property professionals and 'delays and mistakes' by solicitors, the report claimed.

Harry Hill, chairman of In-Deed.net, said: 'With mortgage finance harder than ever to secure and poor service standards rife in estate agency and conveyancing, it's no surprise that home-buying is such a frustrating process.'

The report was based on a survey of more than 4,000 people, around 3 per cent of whom had tried to buy a house in the last year.

Despite the availability of low-rate deals, the report said some lenders had revised down expectations for households' disposable incomes and therefore the affordability of taking out new loans.

Households have seen their budgets squeezed due to high living costs and the failure of wages to keep up with rising bills, amid a backdrop of deteriorating employment conditions.

While demand for lending for house purchase fell in the last three months of 2011, interest in the buy-to-let market picked up, although lenders expected overall demand to drop off slightly in the coming quarter.

Lenders are also offering deals which appear more generous when it comes to credit card borrowing.

Comparison website Moneyfacts said balance transfer cards are currently offering the longest average interest-free deals on record, but warned that transfer fees are at their highest typical levels, standing at 2.93 per cent.

Balance transfer cards are typically offering 356 days of interest-free debt, compared with 296 days in January 2008 at the start of Moneyfacts' records.

Moneyfacts spokeswoman Rachel Springall said: 'The long-term debt-free deals available are an attractive pull to those looking for more time to repay a debt.

'However, customers should always aim to repay the balance before the interest free deal runs out.'

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