Mortgage costs 'highest since 90s

Homeowners have seen the cost of their mortgages rise by 12% during the past year as the price of borrowing increases, according to a report.

Single homeowners spent an average 42% of their take-home pay on their mortgage during the second quarter of the year, according to Cheltenham & Gloucester. This was up from 37.5% the previous year, and was the highest level since 1992.

People who bought a property with two incomes saw a similar increase in the amount they spent on their mortgage, with repayments accounting for ?21.57 out of every ?100 of take-home pay they had, up from ?19.23 during the same period of 2003.

The situation was worse for first-time buyers, who are now spending an average 22% more on their mortgage than a year ago.

Single people who have taken their first step on to the property ladder see almost 36% of their post-tax income go on repayments, while people buying a property jointly are spending 18% of their pay on a mortgage.

Jon Pain, managing director of Cheltenham & Gloucester, said: "Even the more cautious forecasts are pointing towards affordability levels not seen since the early 1990's crash, although it should be noted that they are comfortably below the peaks of the last boom."

And, he said, without the same "extreme bubble-type environment" seen from mid-1988 to 1990, there was a far lower likelihood of the same dramatic collapse in the housing market: "At current prices and income levels, interest rates would have to be 4% to 5% higher than the levels they are at now to reach the same critical point.

"Alternatively, house prices, with current interest and income growth rates, would need to be around 50% higher than current levels to hit the last boom's peaks."

He added that it now looked likely that interest rates would peak at around 5%.

Single homeowners in the south-east are spending the most on their mortgage at an average of nearly 49% of their take-home pay, followed by those in London at 46%, while people in Scotland are spending the least at an average of just 27%.

Affordability has also become most stretched for single first-time buyers in the south-east, where they spend around 43% of their take-home pay on their mortgage, while those in Scotland spend the least at 26%.