Warning over rapid rise in mortgages lasting more than 35 years

LENDERS have sounded the alarm over a rapid increase in people taking out mortgages of more than 35 years, as almost one in four first-time buyers are now borrowing into retirement.

A total of 23pc of first-time buyers stretched their mortgages beyond 35 years in December, figures from UK Finance show, as they accepted longer terms to get on the housing ladder.

This is up from 17pc a year ago and just 9pc before the Bank of England started raising interest rates from a record low of 0.1pc in December 2021.

The Bank has already warned about the risks posed by homeowners taking out longer mortgages because they may struggle with debt in future.

The average age of a first-time buyer is now 34, according to Savills, which suggests many mortgagors will borrow into their late 60s.

The UK Finance data also show that more than 10pc of people moving house are taking out mortgages of more than 35 years. This is more than double the rate in December 2021.

A UK Finance spokesman said: “We are seeing a continued, more rapid, increase in borrowing for more than 35 years. In other words, where customers are using term-stretch to improve affordability, they are needing to lengthen the term even further.” Analysis

by the banking lobby group today shows that first-time buyers would have to take out a 72-year loan to get their mortgage bills to 2022 levels because of the impact of higher interest rates.

The industry body blamed a “significant” contraction in mortgage lending on an increasing number of young people being unable to get on the housing ladder.

Robin Down, an analyst at HSBC, has said there are now 1.3m fewer households with a mortgage compared with 20 years ago, with young people increasingly likely to be renting rather than owning their own home.

This is a “problem for UK mortgage lenders,” said Mr Down. He said: “It’s first-time buyers that drive growth in UK net mortgage lending.

“Thus as first-time buyers have fallen away, so has the growth in the UK mortgage market; over the last 15 years we’ve seen an average growth rate of just 2.3pc per year.”

This is down from around 10pc annual growth in the decade before the financial crisis. A UK Finance spokesman added: “With high house prices, inflation and rising interest rates all bearing down on mortgage affordability, we saw longer-term borrowing increase much more rapidly”.

The maximum mortgage term in the UK is 40 years.

UK Finance said: “Even with this level of term enabling some lending, many borrowers were still unable to pass affordability tests, driving the significant contraction in lending volumes that we saw last year.”

“Around 5m mortgage holders had still not refinanced their loans onto higher interest rates at the end of last year. The Bank raised rates from 0.1pc to 5.25pc, although investors expect the base rate to start coming down later this year.”

A UK Finance spokesman added: “As we move through the first few months of 2024, we are likely to see the downward pricing that began late last year to start to feed through into some stimulus in mortgage completions.

“As observed earlier, applications data suggest [that the first three months of 2024] will indeed show something of an uptick.

“However, affordability remains sufficiently stretched that many would-be customers may still not be able to access mortgage credit, even if they borrowed at a much longer term.”