Rising mortgage rates over the last two years have made buying a first home unaffordable for young First Time Buyers, according to industry analysis.
The cheap home loan deals available two years ago meant First Time Buyers (FTB) would be able to make the monthly repayments based on taking out a 30 year mortgage.
However, these same young buyers would now – theoretically – need a home loan of 72 years to keep the monthly repayments at an affordable figure.
The figures come from UK Finance, which is the banking industry trade body, and serve as an illustration as to how difficult it is for young people to put a roof over their heads.
It looked at typical FTB borrowing in 2022 and compared them to the same person buying a first home today.
It said 2022 was “a year of relative stability in the mortgage market, both in terms of rates available and wider affordability pressures”. And it said this fed through to an average mortgage term for a FTB of 30 years.
UK Finance said: “Throughout 2022, with high house prices, inflation and rising interest rates all bearing down on mortgage affordability, we saw longer term borrowing increase much more rapidly.”
However, it identified seismic changes since then, adding: “The average change in house prices, mortgage rates and incomes to the middle of 2023, for that buyer to achieve the same affordability – as measured by their mortgage payments compared to income – they would have needed to borrow over a 50-year term.”
But, it said the situation has worsened since then, adding that the same FTB from 2022 ‘would now need a term of 72 years to have achieved that 2022 level of affordability on their initial payments’.
Its study adds: “A 50-year term, let alone 72 years, sits outside even the most generous of lender underwriting criteria.
“This does, however, demonstrate why we have seen such a significant increase in much longer-term borrowing.”
Data from the mortgage broke Mojo shows there has been a significant rise in the number of homeowners opting for mortgages with terms of up to 40 years.
Almost six out of 10 (58 percent) borrowers taking out a mortgage last year, chose a term of 25 years or longer.
The proportion of home buyers choosing a home loan term of 25 years or longer is up from 44 percent to 58 percent in just two years.
The broker has also seen an increase in the number of customers opting for mortgages of 30-plus years, with 51 percent of its customers buying a new home last year selecting this longer term, compared to just 41 percent in 2021.
At the same time, demand for mortgages with terms of 40 years or more rose by 16 percent in 2023.
