First-timers Choose Longer Mortgages

Added on November 13th 2020

According to the government’s English Housing Survey, almost half of the country’s first-time buyers are opting for mortgage terms of 30 years or more. 

The numbers of first-timers dropped in 2018-2019 to 727,000 from 785,000 in 2017-2018. Of these 727,000, 45% chose a mortgage term that lasted for at least 30 years rather than the usual term of 25 years.

In 2009, only 33% of first-time buyers took out home loans with terms of more than 30 years. This rise in longer terms is almost at 50%, which is a huge shift.

Why are people opting for longer terms?

The steep rise in house prices against the not-so-steep rise in incomes has made it harder for people to get onto that crucial first step. 

The average deposit for first-timers is £42,361, but for more than two-thirds of these buyers, this sum represents less than the “ideal” minimum of 20% of the purchase price.

Trying to save up a big enough deposit and then factoring in higher monthly mortgage payments can often mean that owning their own home is an ever-receding dream for many. 

One solution is to spread out the cost

Choosing a longer mortgage term usually reduces the monthly repayments. In the long-run, the buyer will spend more on interest, but if the home loan is more affordable on a monthly basis then a longer term is a good move.

An example is someone taking out a 25-year £250,000 mortgage at 2.3% interest. Their monthly repayments will be £1,097. Taking out a 30-year home loan for the same amount with the same interest rate will result in monthly repayments of £962.

The expense of buying a home is deterring many first-timers

The English Housing Survey found that the high costs of buying a property were a major deterrent for first-timers. Just 56% of respondents said they expected to be buying in the near future, which is down from 61% in the 2013-2014 survey.

Even among the renters who did expect to be buying their own home, 41% said they’d probably have to wait and save for another five years first. More than a quarter (27%) did expect to be buying within two years.

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