16/01/12 - Mortgage costs fall to all-time low

• Low interest rates allow lenders to offer some of their best ever deals
• Borrowers could face a tougher struggle to meet lending criteria this yea

Homeowners are benefiting from the cheapest ever mortgage deals with the average monthly repayment now just £494 a month.

Low interest rates have enabled lenders to offer some of their best ever deals.

However, there are warning signs that borrowers will face a tougher struggle to meet lending criteria this year.

Mortgage payments in England and Wales averaged £494 a month or 15.4 per cent of home owners' take-home pay last year, making deals at their most affordable for a decade, according to recent research from Barclays Capital.

The proportion stood at its lowest since the records began 10 years ago, falling from a peak in 2008 when monthly mortgage bills swallowed up more than a fifth of take-home wages.

The Barclays study also suggested that most homeowners could cope with the Bank of England raising the base rate from its historic 0.5 per cent low.

It found that 83 per cent of homeowners would have room for manoeuvre should interest rates, or their circumstances, change.

Just under three-quarters of those studied said they had a plan in place for when interest rates started to rise, with around a third of these planning to cut 'lifestyle' spending, including clothes, holidays and eating out, to offset increases, Barclays said.

Earlier this month, the Bank of England predicted that lenders would increase their mortgage ranges further, but cautioned that this would be offset by tougher lending rules.

The Bank's latest credit conditions survey found lenders were planning to launch more innovative deals, particularly for those who have smaller deposits.

This could help first-time buyers, who have found themselves trapped in the rental sector and fell to their lowest proportion of the housing market for nearly three years in the autumn of 2011.

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