Long mortgages are on the rise (Source: Savills)
When my parents bought their first house in their early twenties, they paid around £40,000 and had a very affordable £400 a month 20 year mortgage. The interest rate was 11% at the time….but that is a different lesson from the history books! The average UK salary at the time was around £17,000 too. Back in those days, 30+ years ago, having a mortgage for longer than 25 years was not desirable at all and even as recently as the last few years, a mortgage of over 30 years was not nearly as common as it is today. Recent mortgage rate increases and property price hikes have forced a lot of first-time buyers to look at taking long mortgages.
First-time Buyers Are Worse Off
A fool could see that obviously being a first-time buyer in the current property market isn’t the most beneficial position. My parents were lucky enough to be able to buy their first 2-bedroom semi detached house in the Midlands at the ages of 24 and 26. The average first time buyer in the UK is now somewhere between 34 and 37. They were also offered a 95% mortgage, only needing to provide a £2,000 deposit at the time (around £4,500 today).
Due to various reasons such as a growing and aging population needing housing, the government constantly missing quotas for the amount of houses being built a year, and general high competition and bidding wars for property, the average price of a property in the UK is now at around £290,000. Compared to 30 years ago when it was at around £55,000. That’s a 427% increase. The average full time salary in the UK is around £33,000. Compared to 30 years ago which was £17,000, that’s only a 94% increase.
Fewer and fewer mortgage lenders are also offering the higher loan to value products. 95% and even 90% mortgages are scarce in the market and an increasing number of lenders are requiring first-time buyer to contribute 15 and 20% deposit minimum. All of these factors and others that we haven’t covered have all contributed to borrowers opting for long mortgages of 30 years or more just to make the purchase affordable for them per month.
Long Mortgages
UK Finance’s Household Finance Review reported that in the last quarter of 2022, half of first-time buyers chose long mortgages of 30 years or more compared to a quarter in 2012. Most lenders have increased their maximum mortgage terms to 40 years to accommodate for this new increase in longer mortgage terms and there has been some speculation and discussion around what a 50 year mortgage could look like.
If my parents had stayed in their first house for the duration of the entire mortgage, they would have paid off their loan by their mid 40’s. But like many people, they have upscaled property over the years. If they had bought a property today on a 30 year term, they would still be paying their mortgage into their late 50s at least, if not longer. If an average first-time buyer at 35 years old took a 30+ year mortgage, they could easily be paying their mortgage past retirement age. The report also shows that an increased number of home mover are opting for long mortgages, with around a quarter looking for 30 year+ terms compared to 1/10 in 2012.
Speak To A Mortgage Advisor Before Opting For A Long Term Mortgage
Long term mortgages might seem more attractive on the payment front and in many cases they are essential, but not always. By speaking to a professional mortgage advisor, you may find out that a shorter term with a competitive interest rate is much more affordable than you thought. No one wants to be paying back a loan past retirement age, so if you can afford not to, then it is worth discussing with a mortgage broker.
Read our First-Time Home Buyer Questions To Ask A Mortgage Broker or contact our Putney mortgage team today to see how we can help you make your dream of home ownership a reality.
