UK markets closed
  • NIKKEI 225

    +135.03 (+0.35%)

    -91.12 (-0.54%)

    +1.07 (+1.40%)

    -8.50 (-0.41%)
  • DOW

    -62.30 (-0.16%)
  • Bitcoin GBP

    +2,335.14 (+5.73%)
  • CMC Crypto 200

    0.00 (0.00%)
  • NASDAQ Composite

    -20.57 (-0.13%)
  • UK FTSE All Share

    -11.96 (-0.28%)

Interest rates: First-time buyers face 30-year mortgages

UK house prices have boomed recently as demand for more space rose during lockdowns. Photo: PA
UK house prices have boomed recently as demand for more space rose during lockdowns. Photo: PA (PA Archive/PA Images)

First-time home buyers in the UK are paying tens of thousands of pounds extra to get on the property ladders as they saddle themselves with mortgages that will take longer to pay off.

Rising interest rates, higher house prices and rocketing inflation saw the average mortgage loan taken out by a first-time buyer hit a record high of 30 years in June, according to UK Finance.

That compares with 25.5 years in 2005 when the lender body started compiling the data.

Read more: How Bank of England interest rate rise will affect mortgages and house prices

Borrowing over a longer term allows people pay more for properties because monthly repayments are spread over more time.

In July, outgoing prime minister Boris Johnson floated the possibility of 40- or 50-year fixed-rate mortgages that can be passed between generations to boost Britain's housing market.

Watch: How does inflation affect interest rates?

In the last two years, house prices have boomed as demand for more space rose during COVID lockdowns.

The latest figures from Nationwide Building Society (NBS.L) show house price growth hit 11% in July to £207,209, a small jump from the 10.7% recorded in June.

Separate analysis from property portal Rightmove (RMV.L) last month showed first-time buyers spend an average of almost £225,000 on their home.

The Bank of England is raising interest rates as it forecast the economy is heading for an extended recession lasting more than a year. Meanwhile, mortgage approvals fell in June by more than forecast.

Last week, Threadneedle Street delivered its biggest interest rate lift in since 1997 to combat runaway inflation, which it predicts will hit 13% later this year.

Threadneedle Street hiked rates for the sixth consecutive month by 50 basis points from 1.25% to 1.75% – their highest level since December 2008.

Read more: Interest rates: First-time buyers face paying 40% of salary on mortgage repayments

But the pressure on home owners is expected to only get worse with the Bank estimating that around 40% of mortgages will go up over the next 12 months as it continues to increase interest rates.

Finance experts from trading platform CMC Markets, explained: "The Bank explained that the rise in interest rates was necessary due to external pressures which are expected to persist.

"This means that British firms and residents will continue to feel this weight reflected in rising domestic prices, wages outpaced by soaring inflation, and even higher mortgage repayments, despite the Bank’s attempt to widen the borrowing pool through less restrictive mortgage rules."

Watch: Will UK house prices ever fall?