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First-time buyers look for long-term loans to get on property ladder

A placard shows a house for sale in London
A placard shows a house for sale in London Copyright HENRY NICHOLLS/AFP or licensors
Copyright HENRY NICHOLLS/AFP or licensors
By Lulu Sinclair
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One-fifth of first-time buyers in the UK wanting to get onto the property ladder are taking out mortgages of more than 35 years, according to UK Finance.

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That is the highest share since records began in 2005 and is a sizeable jump from 10 years ago when the figure was around just a quarter of first-time buyers and fewer than one in 10 property owners looking to move home.

In another sign of a trend, the share of first-time buyers taking out mortgages of up to 40 years has doubled from 9% to more than 20% since December 2021, as mortgage providers offer longer-term loans.

One bank has seen a rush of applicants after it launched its 40-year-term mortgage in the summer.

The data shows the traditional 25-year mortgage is no longer the post popular time frame as more than 50% of all first-time.

UK buyers and more than a quarter of all home movers opted to borrow over a term of more than 30 years.

The Household Finance Review Q3 data from the banking and financial services trade association comes weeks after the Bank of England expressed concern about UK borrowers increasingly looking to extend the length of their mortgage borrowing.

Lending costs fell sharply to an historic low following the global financial crisis of 2007/8 and many house purchasers took advantage of the rates to borrow more.

However, a sharp climb in inflation figures on top of the Covid pandemic and a rise in utility prices due to the war in Ukraine meant the Bank of England came under increasing pressure to raise its interest rates.

Since December 2021, the cost of lending has risen steadily from 0.1% to 5.25%, with many mortgage holders having to find hundreds of pounds in extra payments each month.

The Bank of England believes longer-term mortgages may mean households could be storing up financial pain for the future.

“While longer mortgage terms and other forbearance measures could reduce pressures on borrowers in the short term, they could increase debt burdens over the longer term,” the Bank has said.

Borrowers themselves say they are increasingly concerned about future repayments. Buy-to-let landlords, who financed their purchases through low-cost loans, have pointed out they are being forced to raise rents to cover their increasing costs.

UK Finance says it is possible that some longer-term mortgages might have been taken through choice, rather than necessity.

A borrower, it points out, might prefer to pay less over a longer term initially and perhaps decide to shorten their mortgage time further along their term.

A longer-term mortgage may have the advantage of lower monthly repayments but the overall cost of borrowing will be higher if the borrower takes the full term to repay it.

James Tatch, Head of Analytics at UK Finance, said: “Rising interest rates and cost of living pressures, combined with high house prices have meant that buyers are looking for ways to stretch their affordability.

“Against this backdrop the proportion of first-time buyers who took out longer-term mortgages has crept up through 2023, although this trend looks to be moderating.”

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