Around 20 percent of new first-time buyers opted for mortgage terms extending beyond 35 years in the first quarter of this year, as per a report by trade body UK Finance.
The association revealed that 21 percent of those taking their initial step onto the property ladder had home loans lasting more than 35 years.
UK Finance highlighted this trend towards longer-term mortgages as “further evidence of the ongoing affordability crunch”, with costs and house prices remaining high compared to incomes.
The review noted: “Although the proportion of borrowing at up to 40-year terms eased slightly in (quarter one), it remains far higher than we have seen in the past.”
“This is the case for all types of borrower, but most significantly amongst first-time buyers.”
UK Finance explained that most first-time buyers typically do not keep their mortgage over the full term because they move house or remortgage.
The association reassured that lenders always conduct an affordability assessment to ensure that the customer can afford the mortgage, even if the term extends into retirement.
The review pointed out: “The small but increasing minority of both home-mover and remortgage customers borrowing at these longer terms points to more entrenched affordability issues.”
“Rather than just stretching terms as a means of improving affordability in order to enter the housing market, more customers are needing to do this in subsequent mortgage transactions, further on in their home ownership journeys and their working lives.”
The report continued: “The longer a customer needs to make mortgage payments, the less free income they may have over this period for other important considerations, not least contributions into their pensions.”
“As such, this increasing trend of longer-term borrowing has the potential for wider societal implications, albeit that these may not come home to roost until some years down the track.”
Recently, there have been worries that some house-buyers could be risking their retirement prospects by opting for ultra-long mortgages.
Sir Steve Webb, a former pensions minister and now a partner at LCP (Lane Clark & Peacock), obtained freedom of information (FOI) data from the Bank of England. It showed that 42 percent of new mortgages in the fourth quarter of 2023 had terms extending beyond the state pension age.
Legal & General Mortgage Services also recently reported a surge in people aged 56 to 65 looking to become homeowners in the first quarter of 2024.
UK Finance published its figures as part of its Household Finance Review for the first quarter of 2024, which examined trends across household spending, saving and borrowing.
Towards the end of last year, as mortgage rates began to decrease, there was a significant rise in the number of mortgage applications, according to the review.
However, it stated that any sustained recovery is yet to materialise because market expectations for a Bank of England base rate reduction have shifted to later in the year.
The latest review has highlighted that an “early stimulus” to mortgage demand this year “does not appear to signal a change from our forecasts a picture of continuing, significant affordability constraints holding back activity through the year”.
Eric Leenders, managing director of personal finance at UK Finance, commented: “Some households were in a better place financially in (quarter one of) this year, but we are not out of the woods yet.”
“Cost-of-living pressures remain and, with 1.6 million mortgages due to come off fixed rates this year, there may be challenges ahead for some. If you are worried about your finances, your lender has help available please contact them as soon as possible to discuss your options.”
In response to the ongoing financial strain on homeowners, many lenders have committed to a mortgage charter, offering tailored support to those facing difficulties.
As part of the unfolding financial landscape, UK Finance’s review coincides with Moneyfactscompare.co.uk reporting a slight decrease in the availability of fixed mortgage deals up to May 31, with products for borrowers with a 10 percent deposit dropping from 700 to 696 and those with a five percent deposit from 329 to 326.
Rachel Springall, a finance expert at Moneyfactscompare.co.uk, remarked: “The fact that a few lenders are withdrawing some higher loan-to-value products may raise eyebrows, but we are not seeing a mass exit.”
“However, should more deals be withdrawn at higher loan-to-values, it may come as disappointing news to those who have a limited deposit, such as first-time buyers.”
“The deals that have disappeared last week may well resurface, perhaps when re-pricing activity picks up in the coming weeks. Affordable housing is very much in short supply.”
