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First-time buyers feel the pinch as rising rates hit home

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Higher interest rates are causing first-time homebuyers to spend a bigger proportion of their income on mortgage interest payments, according to the Council of Mortgage Lenders (CML).

Data compiled by the CML revealed that first-time buyers spent an average of 18.3% of their income on mortgage interest payments in March, compared to 18% in February and 16% in the same month last year.

The rise, which largely reflects increases in interest rates, means the proportion of first-time buyers’ income taken up by mortgage payments is the highest since 1991.

The survey also found that first-time buyer income multiples have edged up over the past year to 3.31 times the average first-time buyer income – up from 3.30 in February and 3.15 times in the same month in 2006.

The higher costs are deterring first-time buyers, according to the CML, with their number down 8% on the same month last year.

Those who are purchasing property are protecting their payments against rising interest rates by taking out a fixed rate product, with 88% of first-time homebuyers – the highest proportion ever – choosing a fixed rate.

Director general of the CML, Michael Coogan, said: “With a rise in interest rates widely expected later this week it is encouraging that those first-time buyers who do get a foot on the property ladder are opting for fixed rate products.”

But he added: “Affordability constraints continue to be a barrier to homeownership for many first-time buyers. Lenders are trying to help by offering innovative products where appropriate but will want to ensure lending remains prudent.”


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