First-time buyers’ endangered status worsened last week with the threat of further base rate rises and mortgage interest payments hitting a 15-year high.
Office of National Statistics figures show that consumer price inflation dropped to 2.5% in May from 2.8% in April. And Mervyn King, governor of the Bank of England, predicts it will continue to fall in the coming months.
However, he also warns that further rate rises may be necessary to hit the government’s inflation target of 2%.
Speaking to the Confederation of British Industry in Cardiff, King told delegates: “If indicators remain elevat-ed, the Monetary Policy Committee may need to take furtheraction.”
His admission came as data from the Council of Mortgage Lenders’ regulated mortgage survey showed that first-time buyers in April were spending 18.7% of their income on mortgage interest – up from 16.3% in April 2006 and the highest level seen since 1992.
Michael Coogan, director-general of the CML, says: “Month on month we see affordability constraints for first-time buyers worsening.
“And with the impact of May’s base rate rise still to be felt, borrowers will face higher costs.”
Robert Bryant-Pearson, chief executive of Allied Surveyors, says: “If the BoE continues to drive up interest rates it will drive out first-time buyers, the lifeblood of the market. It would be a catastrophic move.”