battle to get on housing ladder
HOMEOWNERS ARE TAKING ON 35-YEAR MORTGAGES TO GET ONTO THE HOUSING LADDER
FIRST-TIME buyers are so desperate to buy their own homes that they are saddling themselves with an extra 10 years of debt to get on the housing ladder.
Traditionally, banks and lenders have offered 25-year mortgages.
But rising prices and tougher affordability tests have seen many would-be buyers opting to pay back over a longer term so that they can get on the property ladder but the downside is they are shelling out thousands of pounds more in longterm interest.
New data shows that the number of first-time buyers taking out ‘super longterm’ mortgages has nearly trebled since the financial crash.
Across Greater Manchester, more than 25 per cent of first-time buyers took out 35-year mortgages in the first part of this year, compared with just 13.7 per cent for 2006.
But is it worth it? While it helps young people and those struggling to meet new, strict banking tests get on the housing ladder - you could be left paying back £100,000 extra or more in interest if you were to stay with the mortgage provider full term. We spoke to two couples to ask them why they decided to take on the extra debt. Annie Gouk, 25 and her partner
Simon Walker, 31, recently moved into their new home in Old Trafford, which they bought for £220,000.
If the couple stick to the full 35-years of their deal it could cost them an ‘eye-watering’ £374,000.
With a mortgage rate of 2.74 pc, a standard 25 year loan would have cost the couple £273,715, more than £100,000 less. But why did the couple take the gamble?
Annie, who works for Trinity Mirror, explained: “We had always been told to buy the house you can afford in the area you want to live in, but we soon found out this is far easier said than done.
“Having lived in Old Trafford for the last two years, we’ve had our hearts set on the area since day one.
“In order to get on the housing ladder now, while the prices were still within our grasp, we accepted a longer-term mortgage to keep the repayments at a level we can afford at the moment.
“It made it a lot more affordable, but also because we knew it didn’t necessarily mean we would be paying it back for the full 35 years.
“The idea of paying £374,000 for the house is pretty eye-watering but if we weren’t paying it into a mortgage we’d be paying more than that in rent anyway, without getting our own home at the end. Also, it means
that our monthly repayments are about £200 less, which is pretty significant.
“We’re on a three-year fixed rate mortgage, and once that’s up we’ll have the opportunity to renegotiate.
“The most important thing for us was getting on the housing ladder while we still could.”
Christina Blaney bought her house three years ago, with her boyfriend and both were happy to take advantage of the so-called ‘super mortgages.’
Like Annie and Simon, Christina, 28, found out that getting what you want isn’t always that easy.
After months of searching and viewing more than 30 properties the couple found the home they wanted, in the Chadderton area of Oldham. Paying £142,000 they too chose an extended mortgage to help reduce their outgoings. Christina said: “We took out that mortgage because we wanted our monthly cost to be as low as possible. At the time I was earning a good wage, he had savings but he had a low paying job and I wanted to leave my job, so although we were in a perfect position to buy a house, we knew the future might not be so rosy. “We could have afforded our house with a regular mortgage, but we would not be in the comfortable position we are in now and I also would have felt the stress of staying in a job that I hated. “Thanks to having such a low monthly amount I had the freedom to look for work without fear of losing our home.” Three years on from taking the plunge, Christina and her partner are happy with their choice.
She added: “I have no regrets, but it is a bit depressing thinking we’ll be in that debt for 35 years.”
Estate agents are noticing a change among first time buyers.
According to Ged McPartlin, director of Ascend Properties, they are taking advantage of lower interest rates and extended loans.
He said: “As well as record low interest rates, young buyers are often in a stronger position for mortgages as they can borrow over a longer period with 35 year mortgages, making their monthly payments even lower.
“While some may fear this results in debt into their 60s and 70s, this is a reality for most homeowners on the market currently as it is. And as a generation we are generally both working and living longer, so this is likely to be even less of an issue in the future. Thirty-five-year mortgages are quickly becoming the most viable option for most young buyers whose priority is to able to own their own home and this allows them to get their foot in the door from an earlier age.”