Record demand for 35-year mortgage deals as first-time buyers face soaring interest rates
5 June 2023, 10:24
A record number of first-time buyers have signed up to mortgages of more than 35 years as interest rates continue to soar.
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While the move makes buying houses cheaper in the short term, it means homeowners will be forced to pay out thousands more in interest as they gradually pay it off.
One-in-five people are opting for the longer repayment option, meaning in several cases people will be paying off the deals when they are well into their 70s.
Industry figures show 19 per cent of all loans taken out by first-time buyers in March were for more than 35 years.
It is the highest proportion since records began in 2005 and more than double the rate seen in December 2021.
Bank of England rates have gone up from 0.1 per cent to 4.5 per cent amid the cost of living crisis, affecting both new buyers and those who already own homes.
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The average age of a first-time buyer is now 32, according to Halifax.
While some may refinance onto shorter term loans as their pay rises, others are understood to be turning to the longer term deals to make the rates manageable.
In an analysis to be published later this week, industry body UK Finance will say: "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."
But it will say that extending mortgage terms is "reaching its limit".
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"Whilst this has been a long-term trend seen since 2010, the growth in borrowing over a longer term accelerated rapidly through 2022," the analysis will say.
"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."
