The Council of Mortgage Lenders (CML) confirmed on Thursday that the cost of UK mortgages has dropped to a five-year low. The required percentage of income to cover the average mortgage payment has dropped to 12 percent, which will bring more people into the mortgage market and improve demand for property.
While the average household income has also fallen over the period, being able to finance the mortgage payment with just 12 percent of the household income does hold additional attraction. However, one of the top reasons why mortgage costs have fallen over the last five years is because many mortgage lenders require large deposits. Indeed, the average loan value for first-time homebuyers has dropped to 75 percent in 2009 from 83 percent in 2008.
There is no doubt about some attractive opportunities in the UK mortgage market, with lenders now being overcautious and demanding larger deposits, which is somehow distorting the figures.
The ability to create a cushion between borrowed funds against a property and the value of property is imperative in the short to medium-term to allow banking institutions in the UK to rebuild their balance sheets.