Surging house prices and borrowing costs have driven a surge in home buyers taking out loans of 35 years or longer according to the latest data.
Banking trade body UK Finance’s latest Household Finance Review found that one in five first-time buyers took out a mortgage of at least 35 years in 2023, compared with fewer than one in 10 in 2022.
Borrowers struggling with affordability pressures often choose longer mortgage terms to reduce the cost of their monthly payments.
Meanwhile, the number of home loans to first-time buyers plunged 22 per cent from the previous year to its lowest level since 2013. Mortgage lending fell across the board as borrowers struggled with higher interest rates and the cost-of-living crisis.
Home movers were hit the hardest, with loans falling 26 per cent to 251,000 – their lowest level since 1974.
Despite the weakness of the mortgage market, the number of applications for home loans rose in the final quarter of 2023 as inflationary pressures eased and borrowing costs moderated.
Mortgages in arrears of 2.5 per cent or more rose for a fifth straight quarter in the final three months of 2023 to 107,250. This figure is up 32 per cent year-on-year, although still represents less than one per cent of total outstanding mortgages. UK Finance expects arrears to keep rising in 2024, albeit at a slower pace.
Meanwhile, the number of possessions remained largely flat last year totalling 4,620, with most being long-term cases from before the Covid-19 pandemic.
The group also found that personal savings levels fell each month last year – the first time this has happened in 25 years – as households raided their rainy-day funds to cover higher bills.
UK Finance added that households were managing unsecured debt well despite the cost-of-living crisis, with overdraft debt remaining on a downward trend and half of all credit card balances being interest-bearing – the lowest proportion since UK Finance’s records began in 1995.
Eric Leenders, managing director of personal finance at UK Finance, said: “2023 was a tough year for UK households and we expect to see continued challenges in 2024. Affordability remains a barrier to home ownership, but pressures should start to ease gradually through this year and next.
“Amidst ongoing cost challenges, it’s encouraging that customers don’t look to be running up higher levels of unsecured debt. But we know some households will be more affected than others – if you are struggling with personal loan, credit card or mortgage repayments, please reach out to your lender as soon as possible for help.”
