According to data from the UK Council of Mortgage Lenders, long-term fixed-rate mortgages are still proving to be popular, driven by the recent rising interest rates.
The survey conducted by the watchdog revealed that 89% of first-time buyers and 73% of home movers took out a fixed-rate loan, with the majority on a short-term basis, in May 2007, up from 88% and 72%, respectively, in April 2007.
The mortgage survey also found that affordability among borrowers continued to slip, impacting all homebuyers, as well as existing borrowers. First-time buyers in May 2007 had to borrow 3.37 times more than their income to afford a mortgage, a record high, up from 3.33 times in April 2007.
Furthermore, mortgage interest payments continued to rise, reaching 19.1% in May, up from 18.7% in the previous month.
Commenting on the latest data, CML director general Michael Coogan said: For anyone wanting to get a foot on the property ladder or move house, each month affordability is becoming worse. The record number of borrowers who are now paying stamp duty makes a difficult situation even worse, despite the financial windfall to the Treasury. This needs to be addressed urgently.
He continued to say: Taking out short-term fixed-rate mortgages may provide some reassurance, but eventually the loans will revert to a variable rate and the risk of a payment shock is real. Planning ahead for higher payments is as important as the initial decision to shelter from the risk of higher borrowing costs. Financial difficulties are set to rise so it is essential borrowers speak to their lender if they are having repayment difficulties to avoid becoming another arrears statistic.