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Good afternoon and welcome to this week’s Home Front. We really need to talk about ultra-long mortgages.
Regular readers (all is forgiven if you’re new here) may remember that almost exactly a year ago, I decided to analyse data from the mortgage trade association UK Finance to find out how many young people today will likely still be repaying their mortgages in retirement.
I did this because mortgage terms are rising and it will fundamentally change the way older age looks for millennials and Gen Z in years to come.
In 2005, the average length of a mortgage term for a first-time buyer was 25.8 years. By 2022, it had risen to 30 years. Now it is creeping up to 35 years, with some lenders offering 40-year mortgages.
In recent years the average age of first-time buyers has also increased – it is now 30 or above in every part of the country, according to the lender Halifax.
Because young adults like me are buying homes later than our parents and grandparents’ generations did, we will be repaying them later.
But that’s not the only reason for lenders’ decision to stretch the amount of time they’re happy to lend money to homeowners: house prices remain at historic highs (despite recent falls), wages have not kept up and making mortgage loans longer is one way to make the loan meet affordability criteria.
The data I analysed from UK Finance showed that 826,046 mortgages running for 30 years or longer had been taken out since January 2020 alone.
This meant that nearly 830,000 people could be paying off their loans in old age and long after the current state pension age of 66 years old.
The issue of having mortgages in retirement is back in the news again this week because former pensions minister Steve Webb has obtained similar data from the Bank of England via a Freedom of Information request.
Webb’s data shows that, in the last three years, more than one million people have taken out mortgages that they will still be paying off in retirement.
Around two thirds of these loans were taken out by the under-49s, and the rest by those aged 50 and over. The number of loans to those aged 40 and over has shrunk since 2021. So the fastest growth in ultra-long mortgages is among the under-40s.
More debt, for longer
They might help people buy a home but let’s be clear about what ultra-long mortgages mean: more debt, for longer.
Buying a home was once considered to be “a good investment”. Not only did homes go up in value through much of the 90s, 00s and 2010s, but they also guaranteed the people who owned them equity – money they could draw on in retirement to go on holidays, pay for care or, increasingly, help their children and grandchildren buy homes.
High house prices and a stagnant housing market have changed all that.
Buying a home now looks a lot more like renting from the bank for much of your life.
The point will, of course, be made that some millennials and Gen Zers will inherit money from their older family members later in life.
This is partly true but it’s not guaranteed to mean that all of these ultra-long mortgages will automatically be paid off.
Why? We don’t know what adult social care costs will be by then, we don’t know where mortgage rates will be in years to come or how much people will owe and not everyone has wealthy parents who are going to pass on a wodge of cash (as I wrote here).
Home ownership – which didn’t become something that most people could achieve until the 70s and 80s – holds such mythic status in Britain because it symbolises two things we Brits hold dear: autonomy and aspiration.
The rise of home ownership in the later part of the 1900s gave people who had always been at the mercy of landlords a chance to own a piece of the world, it allowed people like my grandparents – who were the first homeowners in either of their perpetual tenant families – to change their social class and dream of handing something down to their family in the way that Britain’s upper classes have always been able to do.
It also gave politicians something to promise voters which is why the Conservatives in particular peddled the idea of the “property-owning democracy”.
The fact home ownership it is now out of reach for a growing number of young adults (adults in their mid-30s to mid-40s are three times more likely to rent than 20 years ago) and that, for those who do manage to get a mortgage, it looks more like an expensive long-term burden than a boon, is a gamechanger politically, socially and economically.
Economic pessimism
No wonder that my generation and those younger than us are so gloomy.
Recent analysis from the pollsters over at Ipsos has found that British adults aged 18-34 are pessimistic about the future of the British economy. Within that group, young women are the most negative – unsurprising given that they’re more likely to have caring obligations and, on average, earn less than men.
The trend for longer mortgages means that younger adults are increasingly likely to spend most (if not all) of their working lives putting even more of their hard-earned capital towards owning a home.
This has knock-on consequences for the rest of the economy: it means those homeowners will be saving less for their retirement and have less money to spend elsewhere too.
Don’t forget non-homeowning young adults, either. Rents are at historic highs and continuing to rise. They will also be pumping capital into housing, but they won’t even have a home to show for it in old age.
None of this is good news.
If there is a silver lining, I suppose it’s this: at least first-time buyers aren’t taking out interest-only mortgages or 100 per cent mortgages like those which were coming before the 2008 financial crisis.
When house prices are high in relation to wages, saving for a deposit is difficult for many people. That’s why the number of first-time buyers who have relied on a financial gift from family members has risen to 37 per cent in the last year.
Lenders have to ensure that mortgages are affordable so, if high numbers of first-time buyers don’t have large deposits, there are three main ways to get credit to them:
One is interest-only mortgages. This risks having nothing at the end of the term if the homeowner doesn’t move to a repayment loan or comes in to a large amount of cash.
The second is no-deposit 100 per cent mortgages. This is risky and means negative equity can be ruinous.
The third is extending mortgage terms. This risks homeowners’ repaying later in life.
Of these, I’d say the third is the lesser of the three evils.
The pessimism of my generation is understandable. But there is a chance that their wages will continue to increase – as they currently are – and mortgage rates will stabilise.
If that happens, it might not be so bad after all.
I am an optimist so I wonder if these fundamental changes to how home ownership is financed might have another upshot too? Could the weight of mortgage debt encourage people to see homes less like an asset which is only there to make money and more like other essential items – like sofas, warm coats and beds – which you buy not because they’ll go up in value but because you can’t live well without them.
The banks will hate that, of course. Mortgage lending is a big part of their business. And so will the politicians who know that promising home ownership wins votes.
But the housing market is still in a downturn (as I wrote last week, it’s all “a bit 2005” out there), so it might not be up to them anyway.
Key housing
Unless you’ve been living under a rock, you’ll know that the Conservative MP for Dover, Natalie Elphicke, defected from the Conservative Party to Labour last week.
She cited the Conservatives housing package as a key reason for her move.
For now, I’d say three things about Elphicke.
Firstly, the Conservatives’ briefing against her – a Member of Parliament they seemed to have no problem with when she was on their benches – suggests that they are very worried about more defections.
Secondly, Elphicke’s work on housing has been thorough. Now is a good time to revisit a report she published earlier this year about the need to build social housing and find ways to help young adults buy homes which she shared exclusively with me.
And, finally, commentary about Elphicke’s response to her ex-husband’s sexual assault conviction is unlikely to go away. Amongst Labour MPs there are calls for her to be suspended and an investigation launched in to her conduct.
Last night she was among 170 MPs who voted in favour of MPs being suspended from Parliament if arrested on suspicion of a serious offence rather than if charged. This passed with just one vote. Elphicke’s ex-husband was accused when he was a sitting MP.
And, now…rent control
A rather controversial report about rent control and whether it should be brought back in England and Wales has been published today.
The report – led by the Labour leader of Hammersmith and Fulham Council, Stephen Cowan – was commissioned when Lisa Nandy was Labour’s shadow housing secretary. She has since been replaced by deputy leader, Angela Rayner.
In the report, Cowan calls for rent rises to be capped at either consumer price inflation or local wage growth – whichever is lower – across England and Wales.
With rent inflation far higher than consumer inflation at 9 per cent, the likes of the Renters’ Reform Coalition argue that this is a logical next step to help struggling private renters.
However, Housing Secretary Michael Gove has said that rent caps are a no go because they could “restrict the supply of housing”.
Rent control is not currently a Labour policy either.
Perhaps that’s why I’ve been told that the Cowan report will be launched in Westminster tomorrow without any Labour ministers in attendance, even though they were invited.
Ask me anything
This week, I’ve been asked about remortgaging and whether it’s wise to wait or go ahead now.
This question grabbed my interest because my fixed-rate deal – at 3.1 per cent – ends in October and I’m currently facing the same dilemma and looking at rates anywhere between 4.5 and 5 per cent. That’s a big old jump.
Only you know what to do but I’d direct you towards this brilliant article by my colleague Callum Mason in which he reports that mortgage rates are unlikely to fall below 4 per cent again this year.
Thank you to everyone who has submitted a question. Please keep them coming there @Victoria_Spratt, on X, formerly Twitter, @vicky.spratt on Instagram or via email [email protected].
This is Home Front with Vicky Spratt, a subscriber-only newsletter from i. If you’d like to get this direct to your inbox, every single week, you can sign up here.
