Rise in First-Time Home Buyers Opting for Long-Term Mortgages

Discover the growing trend of first-time buyers in the UK choosing mortgages exceeding 35 years, as reported by UK Finance. Gain insights into this significant shift in property ownership and mortgage preferences.

The trend of first-time buyers in the UK taking out mortgages of more than 35 years is on the rise, with one-fifth of them opting for longer-term loans, according to UK Finance. This marks the highest share since records began in 2005, indicating a significant shift from a decade ago when only a quarter of first-time buyers and fewer than one in 10 property owners looking to move home chose mortgages of this length.

The data also reveals that 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 reported a surge in applicants after launching its 40-year-term mortgage in the summer.

The traditional 25-year mortgage is no longer the most popular time frame, as more than 50% of all first-time UK buyers and over a quarter of all home movers are opting to borrow over a term of more than 30 years. This shift comes in the wake of the Bank of England expressing concern about UK borrowers increasingly looking to extend the length of their mortgage borrowing.

The low lending costs following the global financial crisis of 2007/8 led many house purchasers to take advantage of the rates to borrow more. However, the recent sharp climb in inflation figures, compounded by the Covid pandemic and a rise in utility prices due to the war in Ukraine, has led to the Bank of England raising its interest rates from 0.1% to 5.25% since December 2021. This has resulted in many mortgage holders facing hundreds of pounds in extra payments each month.

The Bank of England believes that longer-term mortgages may mean households are storing up financial pain for the future. Borrowers themselves are increasingly concerned about future repayments, while buy-to-let landlords, who financed their purchases through low-cost loans, are being forced to raise rents to cover their increasing costs.

UK Finance suggests that some longer-term mortgages might have been taken through choice rather than necessity, as borrowers may prefer to pay less over a longer term initially and then decide to shorten their mortgage term further along the line. However, it is important to note that while a longer-term mortgage may offer the advantage of lower monthly repayments, the overall cost of borrowing will be higher if the borrower takes the full term to repay it.

The increasing trend of first-time buyers in the UK opting for mortgages of more than 35 years reflects the changing landscape of the property market. While longer-term mortgages may offer short-term financial relief, borrowers should carefully consider the long-term implications and costs associated with such loans.