Increase in longer mortgages

Around 70 per cent of first-time buyers signing up beyond tradtitional 25 years, writes Vicky Shaw of PA

Seven in 10 first-time buyers took out mortgages beyond the traditional term of 25 years last year – compared with just under half 10 years ago – according to a report looking into housing affordability.

Around 70% of first-time buyers took out a mortgage with an initial term of more than 25 years in 2020, up from 45% in 2010, the research from Nationwide Building Society found.

This can add significant costs on to a mortgage over the longer term.

Nationwide calculates that increasing a mortgage term from 25 to 35 years can increase the total amount of interest paid on a typical mortgage by 40%.

Higher house prices relative to earnings continue to make raising a deposit a significant barrier for first-time buyers, the society said.

It said that, across the UK, a 20% home deposit now typically equates to 104% of the pre-tax income of a typical fulltime employee, up from 87% 10 years ago.

However, low mortgage rates have kept payments relatively affordable, it said.

Andrew Harvey, senior economist at Nationwide, said: “In 2018/19, around 40% of first-time buyers had some help raising a deposit, either in the form of a gift or loan from family or a friend or through inheritance. This is up from around a quarter in the mid1990s.”

He added: “The good news is that for those that are able to raise a deposit, the cost of the typical monthly mortgage payment relative to take-home pay has been trending down in recent years.”

The research also looked at the cost of house prices in relation to average annual earnings.

Mr Harvey said: “At the end of 2020, the UK first-time buyer house price-to-earnings ratio stood at 5.2, close to 2007’s record high of 5.4, and well above the long-run average of 3.7.”