Yahoo Finance Record share of first-time buyers take out 35-year mortgages
A record share of borrowers are taking out mortgages of more than 35 years to get on the housing ladder, according to data published just weeks after the Bank of England sounded the alarm over a surge in longer-term loans.
More than one in five first-time buyers signed mortgage deals with a term of 35 years or more in September, according to UK Finance.
This is the highest share since records began in 2005 and suggests more borrowers are signing up for a lifetime of debt as higher interest rates continue to pile pressure on households.
The figures also show a record share of people climbing the property ladder took out mortgages of more than 35 years in September, with thousands of borrowers prepared to borrow well into retirement to secure a home loan.
UK Finance said 9pc of home movers opted for loans with terms of more than 35 years.
The share of first-time buyers taking out longer mortgages with terms of up to 40 years has doubled from 9pc to more than 20pc since the Bank started raising interest rates in December 2021.
Policymakers have raised rates from 0.1pc to 5.25pc, leaving many families facing hundreds of pounds in extra interest payments every month.
HSBC launched mortgages with terms of up to 40 years for the first time this summer as borrowers scrambled to reduce their monthly mortgage payments.
The average age of a first-time buyer is now 32 and even older in London, according to Halifax. Homeowners also spend an average of eight years in their first property before moving, according to Zoopla, meaning that many borrowers are now on course to be paying off their home loans in their 60s or even 70s.
The data also reveal how the traditional 25-year mortgage is no longer the norm. Around 56pc of mortgage loans taken out by first-time buyers are now for terms of 30 years or more, up from a third in 2017 and just 7pc when records began in 2005.
On Wednesday the Bank of England will highlight the risks facing homeowners and landlords in its twice-yearly financial stability report. In October it said that a rise in 35-year mortgages meant more households were storing up financial pain for the future.
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.”
Although borrowers benefit from an immediate reduction in monthly repayments as they stretch out the loan over more years, this is more than offset by a higher cost over the full life of the mortgage as the high rate of interest is applied to the debt over a longer period.
“Some borrowers facing higher interest rates have taken out mortgages with longer terms,” said the Bank’s Financial Policy Summary in October.
“There has, for example, been a notable increase in the proportion of borrowers taking out mortgages with 35-year or above terms.
“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.”
Rising borrowing costs are also piling pressure on other parts of the housing market, as buy to let landlords were also reliant on cheap debt to fund purchases of properties.
“Higher interest rates, together with some structural factors, were also putting pressure on profitability in the buy-to-let sector, which had led some landlords to sell or pass on higher costs to renters,” the Bank of England said.
Private rents in October were up 6.1pc on average compared with the same period of 2022, according to the latest figures from the Office for National Statistics.
The highest increase came in Wales at 6.9pc, followed by London at 6.8pc. Data for Northern Ireland are only available up to August, and show an even higher rate of 9.6pc.
The smallest increases were in the North East of England, where rents rose by 4.7pc.
It means rent growth in every region in recent months has hit the highest level recorded on ONS data going back as far as 2006.
