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From Times Online

June 12, 2007

First-time buyers face highest mortgage costs in 15 years

First-time buyers are facing a "double whammy" of spiralling mortgage costs and stamp duty charges

Lucia Adams

First-time buyers are facing a "double whammy" of spiralling mortgage costs and stamp duty charges, according to a report out today from the Council of Mortgage Lenders (CML).

Interest rate rises have pushed up mortgage payments for first-time buyers to the highest level in 15 years. In April, 18.7 per cent of the average first-time buyer income was spent on mortgage interest - the highest level since 1992 according to the report.

Steep rises in house prices also mean that more and more people must pay stamp duty on their first property. In April, almost two thirds of first-time buyers were forced to pay stamp duty on their purchase, up from 51 per cent over the same period last year.

Rising interest rates have also affected home movers. Mortgage payments for this group are at their highest level since 1992 with 16.3 per cent of incomes being spent on mortgage interest.

The CML said that the impact of May's interest rate rise is still to be felt, and that many borrowers will face even higher costs in the coming months.

Commenting on the data, CML Director General Michael Coogan said: "The vast majority of borrowers will be able to absorb higher mortgage payments. But with two million fixed-rate loans coming to an end over the next year and a half, many borrowers should anticipate that their mortgage costs are likely to rise and should be planning ahead."

In April, 88 per cent of first-time buyers and 72 per cent of home movers took out a fixed rate loan, according to the CML.

The CML survey follows a government agency report earlier this month which said that by 2026 first-time buyers will have to find 10 times their salary to get onto the housing ladder.

Commenting on the CML figures, Oliver Gilmartin, RICS senior economist said: "The threat of further interest rate rises has clearly hit home for those buying their first property. With first time buyers now needing to borrow record multiples of income to get a foot on the property ladder, it is little surprise that four in every five are taking out fixed rate deals. The price of fixed rate mortgages has risen consistently in 2007 and is set to rise further as interest rate rises and lingering inflation concerns raise longer dated borrowing costs. With affordability the worst in over a decade and some homeowners fearing the end of current fixed rate arrangements, holidays at home may be all the rage this summer."