Mortgages: Warning deal is ‘reaching its limit’ as repayment costs soar

Rows of houses from above

35 year mortgages are becoming increasingly popular for first time buyers

Sam Montgomery

By Sam Montgomery

Published: 05/06/2023

- 09:10

The proportion of first-time buyers resorting to mortgages of 35 years or more is at its highest level since records began

As costs skyrocket, first time buyers are succumbing to saddling themselves with long term mortgages in record numbers, leading to banking industry warnings about kicking the can down the road.

Data released by UK Finance shows 19 per cent of loans taken out by first-time buyers in March were for terms of 35 years or longer.

Extending mortgage terms can be an effective strategy for people to get on the housing ladder, for monthly repayments are made more affordable in the short-run, but UK Finance cautions that stretching affordability and meeting underwriting requirements is “reaching the limit”.

The proportion of first-time buyers opting for mortgages of 35 years or more in December 2021 stood at 9 per cent, more than doubling since then to the highest level since records began in 2005.

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Mortgage costs have risen considerably since the Bank of England raised rates a dozen times to 4.5 per cent last month in a bid to keep a lid on inflation, which still stands at 8.7 per cent.

Figures may be warped by the number of first-time buyers that may be able to refinance onto shorter term loans as their income rises and deals expire, yet the figures also reveal a concerning trend of existing homeowners turning to longer term deals.

UK Finance data shows that 8 per cent of those moving home are resorting to mortgages of 35 years or more, up from 4 per cent in December 2021.

Meanwhile, the average age of the first-time buyer has risen from 29 a decade ago to 32, according to Halifax.

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The number of house movers taking out mortgages of 35 years or more has doubled since December 2021


Over the weekend, banks began to turn the screw on first time buyers, with rate hikes announced by Santander and Coventry Building Society, while TSB withdrew all ten-year fixed-rate deals with two and a half hours’ notice.

Around three quarters of the UK’s 20 biggest mortgage lenders have increased mortgage rates since turbulence in the financial markets began on May 24, as the number of mortgage deals has hit its lowest level since March, according to Moneyfacts.

UK Finance, which represented the banking and finance industry, said: “In order to lower monthly payments and, thereby, improve their affordability calculations, we have seen customers increasingly take out mortgages over longer terms, an option still permitted by most lenders and also within the [City watchdog’s] responsible lending rules.

"Whilst this has been a long-term trend seen since 2010, the growth in borrowing over a longer term accelerated rapidly through 2022."

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The analysis continued: “As 2023 began we have seen the growth in longer term borrowing level off.

“Although tentative at this stage, this may signal that the extent to which this option can be used to stretch affordability and meet underwriting requirements is reaching its limit.”

Housing costs are expected to rise further in the coming months, spurred by an increase in so-called core inflation in April which prompted a spike in the gilt yields and swap rates that banks use to price fixed-rate mortgage deals.

In April, the average five-year fixed rate mortgage for a buyer with a 25% deposit was 4.2% but this figure is likely to hit 5% in the next few weeks.

Were a buyer to take out a £200,000 loan, a 0.8% increase in mortgage rates equates to an extra £1,600 per year in interest.

Richard Donnell, the executive director of research at Zoopla, warned that rising mortgage rates and the wider economic outlook could have a profound impact on the housing market.

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