Mortgage costs drop proves a silver lining

Monthly mortgage repayments have fallen from an average of 607 in December 2008 to 497 in the final month of 2009, following reductions to the Bank of England base rate, according to the Woolwich.

As a result, homeowners spent just 157 of every 1,000 of take-home pay they received on their mortgage in December, down from 196 per 1,000 a year earlier.

Although the majority of the steep reduction to the base rate had already happened by the end of 2008, homeowners on fixed-rate deals only benefited from the cuts once their mortgage deal came to an end and they went on to their lenders' standard variable rate, contributing to the steep fall in average mortgage costs during the year.

Andy Gray, head of mortgages at Woolwich, said: "For the 11 million UK households who have a mortgage there is a silver lining to the recession – a substantial reduction in mortgage payments right when they need it most.

"For them it's a chance to save in a way they might not have been able to before, or to overpay their mortgage and cut years from its life."

People in London saw the biggest reduction in the proportion of their take-home pay that they were spending on their mortgage, with this falling by 23 per cent during the period, followed by those in the South West at 22 per cent. Homeowners in the North East saw the smallest reduction at 15.5 per cent, with people in Wales, the East and North West all seeing an 18 per cent drop.

n The number of mortgages available for people with only a 10 per cent deposit has soared by 25 per cent since the beginning of the year.

There are now 142 different mortgage products for people borrowing up to 90 per cent of their home's value, compared with 114 at the beginning of January and twice as many as were available in May last year.

There has also been a marked increase in deals for people with a 15 per cent deposit, with these jumping from 260 to 301 since the beginning of the year, according to financial information group Moneyfacts. co.uk

The increase in choice for people with only small deposits is a further sign that competition is returning to the mortgage market as lenders become more confident.

It has been accompanied by a fall in the average interest rate charged on fixed rate loans, as banks and building societies try to tempt homeowners off their standard variable rates and on to new deals.