Surge in Long-Term Mortgages as UK Buyers Navigate Affordability Challenges

According to the banking association UK Finance, a notable increase in long-term mortgages is being observed in the UK, driven by the quest for affordability amid rising property prices and economic challenges.

Traditionally, housing loans in the UK have been structured over 25 years, but there is a growing trend towards longer repayment periods. Recent data from UK Finance reveals that in December, 23% of first-time buyers opted for mortgages longer than 35 years, compared to 11% among non-first-time buyers. This indicates a significant shift from just a year ago, when the proportion of first-time buyers was 17%, up from 9% in December 2021.

The surge in longer-term mortgages is attributed to affordability concerns, as a more extended mortgage term results in lower monthly payments. UK Finance cautions that to bring initial mortgage payments back to 2022 levels, first-time buyers would need a 72-year loan, which is beyond the UK's maximum mortgage term of 40 years.

Several factors contribute to this trend, including the Bank of England's series of interest rate hikes since December 2021, a cost of living crisis, and property prices outpacing wage growth over the long term. The average time required for a couple to save for a home deposit has increased from three to nine years over the past four decades.

While longer-term mortgages offer a potential solution for those struggling with affordability, they come with drawbacks. The extended repayment period results in higher overall interest payments, and individuals may make mortgage payments well into their retirement years, impacting their quality of life.

Notwithstanding the risks, some mortgage lenders, like Nationwide, express optimism about longer-term mortgages. Nationwide emphasises its efforts to address challenges in raising deposits and borrowing amounts, providing flexibility for up to 40 years of mortgage terms.

As UK buyers navigate these challenges, hope is on the horizon for 2024. While individuals on fixed-rate schemes won't see immediate changes, market expectations of a potential interest rate cut by the Bank of England may lead to reduced mortgage costs over the year. Eric Leenders, Managing Director of Personal Finance at UK Finance, suggests that pressures on UK households will gradually ease in the coming months.