First-time borrowers would need to finance their home loans over 72 years to be able to afford the same mortgages on offer just two years ago, data from UK Finance shows.
It looked at typical FTB borrowing in 2022 – “a year of relative stability in the mortgage market, both in terms of rates available and wider affordability pressures,” – says the banking trade body in its Household Finance Review Q4 2023.
In 2022, the average mortgage term for a FTB was 30 years.
The study adds: “Throughout 2022, with high house prices, inflation and rising interest rates all bearing down on mortgage affordability, we saw longer term borrowing increase much more rapidly.”
It points out: “The average change in house prices, mortgage rates and incomes to the middle of 2023, for that buyer to achieve the same affordability – as measured by their mortgage payments compared to income – they would have needed to borrow over a 50-year term.”
But the body adds: “Towards the end of 2023, we started to see some easing off in new mortgage rates, as lenders were able to reduce pricing in response to an easing of market swap rates used to fund fixed rate mortgages.
“However, the rates on completed new mortgages, which reflect deals agreed typically one to two months previously, look to have peaked in the final quarter of 2023.”
The review says that based on rates for loans completed in December last year, the same FTB from 2022 “would now need a term of 72 years to have achieved that 2022 level of affordability on their initial payments”.
The study adds: “A 50-year term, let alone 72 years, sits outside even the most generous of lender underwriting criteria.
“This does, however, demonstrate why we have seen such a significant increase in much longer-term borrowing.”
There has been a significant rise in the number of homeowners opting for mortgages with terms of up to 40 years, according to data from mortgage brokers Mojo yesterday, which partners with comparison site USwitch.
Almost six out of 10 (58%) borrowers taking out a mortgage last year, chose a term of 25-years or longer.
Two years previously, just 44% of homeowners opted for a 25-year plus mortgage term.
The broker has also seen an increase in the number of customers opting for mortgages of 30-plus years, with 51% of its customers buying a new home last year selecting this longer term, compared to just 41% in 2021.
Meanwhile, demand for mortgages with terms of 40 years or more rose by 16% in 2023.
How many borrowers who take out any length of mortgage keep it for the full duration? Income levels change, the cost of living changes, priorities change, therefore a 72-year mortgage would only ever be a means to an end. If you are old enough to remember, going interest only for three years prior to converting to repayment over 25-years, was the way hard up, cash strapped young people did it back then. Since when was it ever easy to buy your first home? The difference in cost between 40 and 72 year mortgages is relatively small so why not give it some context with some numbers. Might spoil the story.