First-time buyers face a record financial burden

Figures from the Council of Mortgage Lenders (CML) show that first timers are now borrowing an average of 3.33 times their incomes to buy a home.

With interest rates having risen four times in the past year, interest payments now take up 18.7% of the average first-time buyer's income.

The CML says that is the highest proportion since early 1992.

"Month on month we see affordability constraints for first-time buyers worsening," said the CML's director general Michael Coogan.

"And with the impact of May's interest rate rise still to be felt, many borrowers face higher costs in the coming months."

Fixed rate warning

With interest rates rising in the past year, fixed-rate mortgages have become the overwhelmingly popular choice for home buyers, as they seek certainty for their borrowing costs.

Fixed-rate deals in April accounted for 78% of all new mortgages.

But the CML warned existing home buyers to prepare for higher repayments if their current deals are likely to expire in the next year or so.

According to the CML's analysis, 1.3 million people took out a fixed-rate mortgage in 2005, with a further 1.5 million doing so last year.

It estimates that most of these borrowers will see their mortgage rates rise by between 0.75% and 1.5% if they switch to new deals at the current levels on offer.

"The vast majority of borrowers will be able to absorb higher mortgage payments," said Mr. Coogan.

"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."

Higher repayments

The CML calculates that the average two-year, fixed-rate, borrower whose deal will end later this year originally had a mortgage of around �114,000.

If they had taken out a repayment mortgage at 4.6%, which was the average two-year fixed rate when rates were at a low point in September 2005, then they will have to pay about �102 a month more if their new rate is 1.5% higher.

Rapidly rising house prices are also forcing more first timers to pay stamp duty when they buy their first home.

The proportion of them who bought a flat or house worth more than the �125,000 threshold, for paying the initial 1% rate of stamp duty, was 58% in April - up from 51% a year before.