Unprecedented Number of First-Time Homebuyers Opt for 35-Year Mortgages

Recent data reveals an all-time high in the proportion of borrowers choosing mortgages exceeding 35 years, marking a significant trend just weeks after the Bank of England expressed apprehension about the surge in extended loan terms.

 

According to UK Finance, over 20% of first-time buyers committed to mortgage agreements with durations of 35 years or more in September. This figure represents the highest share recorded since 2005, indicating a growing willingness among borrowers to embrace a prolonged debt commitment amid escalating interest rates that are adding strain to household finances.

 

The data further highlights a historic surge among existing homeowners seeking to climb the property ladder, with a record percentage opting for mortgages exceeding 35 years in September. Thousands of individuals are now willing to extend their borrowing well into retirement in order to secure a home loan. UK Finance reports that 9% of home movers selected loan terms surpassing 35 years.

 

The inclination toward longer mortgages has intensified, particularly with first-time buyers, as the share of those choosing terms of up to 40 years has doubled from 9% to over 20% since the Bank of England initiated interest rate hikes in December 2021. The central bank has incrementally raised rates from 0.1% to 5.25%, resulting in additional financial burdens for many households, translating to hundreds of pounds in extra monthly interest payments.

 

In response to rising interest rates and the strain of increased living costs, prospective buyers are exploring ways to enhance their affordability. HSBC, for instance, introduced mortgages with terms of up to 40 years for the first time this summer, addressing the urgency among borrowers to mitigate monthly mortgage expenses.

 

The evolving landscape of the housing market is also impacting buy-to-let landlords, who previously relied on affordable debt for property acquisitions. The repercussions of escalating borrowing costs are evident in the private rental sector, where rents in October experienced an average increase of 6.1% compared to the same period in 2022, according to the latest statistics from the Office for National Statistics.

 

As the average age of first-time buyers rises to 32, and even higher in London according to Halifax, James Tatch, Head of Analytics at UK Finance, notes that the trend of opting for longer-term mortgages has been gradually increasing in 2023, although there are signs of moderation in this pattern. The confluence of rising interest rates, growing living costs, and soaring house prices is reshaping the borrowing landscape and influencing the choices made by individuals navigating the property market.

 

Collings Solicitors 

Altrincham 

 

0161 928 5558