A warning has been issued to homeowners whose mortgages are stretched beyond 35 years. One in five new first-time buyers took out mortgage terms stretching beyond 35 years in the first quarter of this year, according to a trade association.
21 per cent of people taking their first step on the property ladder had home loans lasting for more than 35 years, UK Finance said. The trend of longer-term mortgages is “further evidence of the ongoing affordability crunch”, as costs and house prices remain high relative to incomes, UK Finance said.
Its review added: “Although the proportion of borrowing at up to 40-year terms eased slightly in (quarter one), it remains far higher than we have seen in the past. This is the case for all types of borrower, but most significantly amongst first-time buyers.”
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Its review said: “The small but increasing minority of both home-mover and remortgage customers borrowing at these longer terms points to more entrenched affordability issues. Rather than just stretching terms as a means of improving affordability in order to enter the housing market, more customers are needing to do this in subsequent mortgage transactions, further on in their home ownership journeys and their working lives.”
It continued: “The longer a customer needs to make mortgage payments, the less free income they may have over this period for other important considerations, not least contributions into their pensions. As such, this increasing trend of longer-term borrowing has the potential for wider societal implications, albeit that these may not come home to roost until some years down the track.”
Eric Leenders, managing director of personal finance at UK Finance, said: “Some households were in a better place financially in (quarter one of) this year, but we are not out of the woods yet. Cost-of-living pressures remain and, with 1.6 million mortgages due to come off fixed rates this year, there may be challenges ahead for some. If you are worried about your finances, your lender has help available – please contact them as soon as possible to discuss your options.”
Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said: “The fact that a few lenders are withdrawing some higher loan-to-value products may raise eyebrows, but we are not seeing a mass exit. However, should more deals be withdrawn at higher loan-to-values, it may come as disappointing news to those who have a limited deposit, such as first-time buyers.
“The deals that have disappeared last week may well resurface, perhaps when re-pricing activity picks up in the coming weeks. Affordable housing is very much in short supply.”
