Experian reports that to reduce monthly payments, a quarter of young homeowners with new mortgages have chosen to pay it back over 35 years or more.
A credit data business analysis revealed that between January and March of this year, 25% of newly minted homeowners aged 29 and under chose a payback period of at least 35 years.
It contrasts with the historical average level of around 10%, as reported by Experian in January 2020.
To bridge the gap between rising living costs and still-high asking prices, first-time buyers and movers increasingly opt for “marathon” mortgages, with lenders providing periods of up to 40 years on some packages, for reduced monthly payments.
“Our data suggests that people under 30 are looking for longer mortgage repayment terms to help keep monthly repayments on their homes down, and this could be affecting property-buying among house hunters,” said James Jones, Experian’s head of consumer relations.
Longer mortgage terms mean that some people will be approaching retirement age, if not already retired, when they ultimately pay off their loan. A typical mortgage used to be for 25 years.
“With high interest rates increasing the pressure on borrowers, young people may feel like they have been ‘locked in’,” Jones stated. “So we’re encouraging people to consider ways that they might be able to secure better deals on their mortgage terms.”
The trade organization UK Finance reported earlier this year that a record 19% of all loans taken out by first-time buyers in March had terms of 35 years or more, with more than half taking a loan of more than 30 years.
It was reported at the time that 8% of property buyers took out mortgages with periods of 35 years or more.
This newest estimate shows the largest proportion of 35-year mortgages since records began in 2005, more than double the 9% rate in December 2021, when the Bank of England began hiking interest rates from a low of 0.1%.
However, some indications that rising mortgage rates have peaked.
The Bank of England held interest rates at 5.25% for the first time in nearly two years last month, following official numbers showing a surprising dip in inflation in August.
According to Moneyfacts, the average new five-year fixed mortgage rate has gone below 6% for the first time since early July, prompting lenders to lower their rates.
There are an increasing number of “best-buy” five-year fixed-rate options available at or below 5%, while many are restricted to purchasers with a big deposit or come with high fees.
Many brokers, though, believe a full-fledged mortgage price war is starting as lenders compete for customers, with more mortgage rate drops predicted this month.
