Half of all first time buyers are having to take out mortgages with a term of over 30 years – five years longer than the traditional mortgage time – in order to afford their first home.
By extending the mortgage rate, you can make the monthly payments more affordable, only you may pay more in interest over the long-term.
While the proportion of people borrowing over 25 years has increased since the 2008 financial crisis, it has accelerated sharply since 2021.
The data is from the Household Review for UK Finance, the trade body for the banking industry. It also shows that around 1.8 million fixed rate mortgages will mature in 2023, which will need refinancing at rates that have risen sharply since the mini-Budget.
At the end of the third quarter of 2022, half of all first time buyers and a quarter of all home owners took out mortgages over a 30-year term. This compares to about a quarter of first time movers and 10 per cent in 2012.
In 2005, the average mortgage term was 25.5 years. Now, typical household income of new borrowers has also risen by 17 per cent to just under £60,000 in the three months up to October, compared to the same quarter in 2021.
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While house purchase activity remained roughly in line with pre-Covid levels in the third quarter of 2022, UK Finance warned that demand was expected to weaken into the new year due to increasingly stretched affordability.
The increased cost of living and changing employment patterns were likely to continue to have an impact on demand and affordability into next year.
Household savings remained largely flat compared to the second quarter of the year, while overdraft use continued to increase slightly, as households found their finances squeezed further. The levels of overdraft use remained well below those seen before Covid-19, however, as many people paid off their balances during the pandemic.
