First-time buyers now spend more than a third of their take-home pay on mortgage repayments, new research shows.

Lender Cheltenham & Gloucester (C&G) said single people taking their first step on to the property ladder spent an average of £33.90 of every £100 of take-home pay on their mortgage during the last quarter of the year.

The figure, which covers England, Scotland and Wales, is up slightly from the £33 per £100 they spent during the second quarter of the year.

The current level is considerably higher than the 22.4 per cent of pay a mortgage took up in 1996 but well down on the 65.3 per cent reached in 1990.

For existing single homeowners, affordability actually improved slightly during the period, falling from £34.20 of £100 of take-home pay in the second quarter to £33.80 in the final three months of the year.

The burden of mortgage repayments for people buying their first property as a couple were significantly less at 18.8 per cent of post-tax pay while couples who were existing homeowners spent about 17.4 per cent of pay on repayments.

Jon Pain, C&G's managing director, said: "It's very hard to believe house price inflation will not slow during 2004, given the likelihood of further increases in interest rates and today's high house price earnings ratio.

"Much has been made recently of the current high levels of household debt.

"The fact debt levels are so high tends to make consumers very sensitive to higher interest rates - as does housing affordability."

This should restrain the Bank of England monetary policy committee, as a relatively small rise in interest rates would probably go a long way to curbing demand.

He said: "A quarter or half-percentage point rise during 2004 may well be judged sufficient to keep inflation under control and, in turn, keep affordability at favourable levels."

A regional breakdown of mortgage repayments in the second quarter showed single first-time buyers in the South-West faced the highest payments as a proportion of take-home pay at 43.3 per cent, followed by those in the South-East at 41.9 per cent and Greater London at 37.2 per cent.

Repayments were lowest in Scotland at 22.2 per cent, followed by the North at 23.9 per cent.

Friday December 05, 2003