A report by building society Nationwide discovered in 2020 around 70% of first-time buyers had taken out a mortgage with an initial term of 25 years or more compared with 45% in 2010.
This is despite the fact that adding an addition 10 years onto the term – and so increasing it from the traditional 25 years to 35 – can mean they are paying 40% more on the typical mortgage.
This trend, highlighted in the Nationwide Affordability Report published this week, demonstrates the lengths borrowers are willing to go to in order to get on the property ladder. Indeed, lengthening the term makes payments more affordable in the short term.
Miles Robinson, head of mortgages at mortgage broker Trussle, explained: “Ensuring monthly repayments are affordable has increasingly become buyers’ primary concern rather than the overall value of their property.
“We’re living in a time when more than half the UK population now waits until the age of 34 before owning their first home, and may consider it a stepping stone rather than a ‘home for life’.”
Nationwide’s report also flagged up how raising a deposit, rather than mortgage repayments, is the major challenge for first-time buyers today.
It said a 20% deposit on a typical home was the equivalent to 104% of the average income because house prices were so high.
Jobs and mortgage payments
Nationwide also looked at how affordability varied for potential first-time buyers in different professions. It found mortgage payments relative to take home pay were lowest for those in managerial and professional roles, where average earnings tend to be higher.
Andrew Harvey, senior economist for Nationwide, said: “Affordability is most challenging for those working in areas classified as ‘elementary occupations’, which include jobs such as construction and manufacturing labourers, cleaners and couriers, and those in care, leisure and other personal service jobs.
“In these groups, typical mortgage payments would represent over 40% of average take-home pay.
“The differences in affordability reflect the divergence in earnings by occupational group. For example, those working in professional occupations typically take home around 75% more per year than those working in sales and customer service.”
Trussle said the best advice it could offer anyone who was looking to take out a mortgage for the first time was to spend as much time as they could saving for a deposit.
What’s more, it advised you should always take into account any personal and future circumstances when securing a mortgage, and seek advice to ensure you’re aware of the best options available for you.
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