Buyers opt for longer-term home loans amid affordability concerns

Increasing numbers of property buyers are now taking out mortgages with terms of more than 30 years, new figures show.

The latest Household Finance Review from banking trade body UK Finance shows half of all first-time buyers and more than a quarter of home movers who took out a mortgage in the third quarter of this year opted for a term of more than 30 years.

The figures compare with around a quarter of first-time buyers and fewer than one in ten home movers doing so just 10 years ago.
UK Finance said the shift reflects the effects of rising house prices and new mortgage rates on affordability.

Taking a longer-term mortgage is seen by many borrowers as a way of lowering their monthly repayments but it does mean paying interest for longer so the loan can end up more expensive, plus more buyers could end up borrowing into retirement.

The data also shows that the average income of new borrowers has risen. 

The average household income of a first-time-buyer mortgage application in the third quarter of 2022 stood at just under £60,000. 
This is 17% higher than the same quarter last year. 

During this time, wage growth was well below this rate, indicating a shift towards higher income households entering the market as lower income households struggle to get onto the housing ladder, UK Finance said.

According to the review, house purchase activity remained on trend with pre-Covid-19 levels during the quarter, but UK Finance has warned that demand is expected to weaken into 2023 due to stretched affordability.

Arrears and repossessions also remain low, UK Finance said, adding: “The burdens on household finances from falling incomes and higher mortgages could mean an uptick in arrears next quarter and into next year.”

Eric Leenders, managing director of personal finance at UK Finance, said: “The levels of home buying and selling were in line with pre-pandemic trends in the third quarter, but we expect activity to cool next year. Cost of living pressures and changing employment patterns are likely to have an impact on demand and affordability going forward.

“At the same time, 1.8m fixed rate deals are due to end in 2023, so refinancing levels will be robust. We would encourage customers to speak to a mortgage adviser and shop around for the best deal for their circumstances.

“Lenders are here to help. Anyone who is worried about their mortgage, loan or credit card payments, should speak to their lender as soon as possible to discuss the options available to help.”