20 things

Everything you need to know about borrowing

10 June 2006

20 things you should know about….

Alliance & Leicester Borrowing Monitor.

1The Alliance & Leicester (A&L) Borrowing Monitor for May has revealed a rise in new mortgage lending, with an increase of 28.4 per cent from May 2005’s figures.

2According to the A&L research, the proportion of under 30s planning to get onto the housing ladder increased from 12 per cent in January, to 16 per cent in May.

3The number of people opting to remortgage also rose, by 3 per cent from January’s findings.

4However, in conjunction with an increase in the number of people getting onto the property ladder, or moving, the A&L Borrowing Monitor revealed mortgage debt, to the end of April, stood at £999.2 billion, with estimated rises of £9 billion a month.

5Despite rises in the level of mortgage debt, the research showed affordability for those taking out new mortgages remains at a similar level to a year ago.

6Interest payments took up 14 per cent of household income for those taking out a new mortgage loan during the first quarter of 2006. This is compared to 27 per cent in 1990.

7The average outstanding mortgage in the UK rose to £85,992 in the first four months of 2006, a rise of 9.6 per cent from the previous findings.

810 per cent of income was spent on mortgage interest costs during the first four months of 2006, the same as was seen in the 2005 findings.

9Total mortgage payments, including capital, account for approximately one fifth of household income (20.5 per cent). This is compared to a third in 1990.

10According to the A&L figures, 15 per cent of households planned either to buy a property for the first time or move, buy or remortgage before Winter, indicating improved activity levels within the housing market.

11The A&L Borrowing Monitor revealed the Bank of England (BoE) Base Rate would need to reach 8.5 per cent for the cost of debt servicing as a proportion of household income, to reach the ‘crisis’ levels seen of 1990.

12The research showed people have far greater concern about credit card and other borrowing than they do about mortgages. Credit card borrowing fell £900 million between January and April 2006, following research that indicated the majority of people expected to reduce their credit card balances and other borrowing.

13Total personal loans fell by £360 million, from the £135.90 billion in December 2005, A&L revealed.

14However, the Borrowing Monitor revealed 29 per cent of households have a personal loan, with the average balance standing at £8,368.

15The report revealed many people had adopted the old-fashioned virtue of waiting until they can afford to buy. It also showed the predictions many experts made – that a move to affordability based lending would lead to greater debt burdens – had not been realised.

16Commenting on the findings, Chris Rhodes, managing director of Alliance & Leicester retail banking, said: “We are seeing greater confidence in the mortgage market from consumers. It’s particularly pleasing to see the increased confidence among the under 30s. Increased first-time buyer activity enables others to move up the ladder. Affordability remains good, which means that despite renewed mortgage borrowing, consumers are taking a responsible attitude. April’s slightly cooler market should also give some reassurance that the market is not returning to an unsustainable boom.

17Rhodes added: “While household incomes have grown modestly, interest rates are lower than a year ago. Overall, the cost of servicing a mortgage has therefore fallen slightly, despite gently rising house prices.”

18The A&L Borrowing Thermometer measures the level of interest rates required today for the proportion of household income of the average household with a mortgage consumed by interest payments to be the same as in 1990, when the UK suffered ‘a serious debt crisis.’

19The data for the calculations is sourced from the BoE, the Office of the Deputy Prime Minister – now known as the Department for Communities and Local Government (DCLG), the Council of Mortgage Lenders (CML) and A&L data.

20As part of the survey, YouGov questioned 2,588 people in January, and a further 2,000 in May.