The choice of mortgage deals on the market has fallen further in recent days as lenders continue to raise borrowing rates and withdraw products, prompting more borrowers to take out loans repayable over longer periods in a bid to make monthly payments more affordable.
New data released by UK Finance shows that a record 19% of all loans taken out by first-time buyers in March were for terms of 35 years or longer, with more than half taking a loan of more than 30 years.
This is the highest proportion since records began in 2005, as house-hunters look to make the increasing cost of loans more affordable.
The figures also reveal that 8% of home movers are taking out mortgages for terms of 35 years or more, compared with 4% in December 2021.
While the move to spread out the period of the loan makes it more affordable on a monthly basis for homeowners trying to cope with rising mortgage costs, over the lifetime of the loan they will pay significantly more interest and could be laden with debt into their retirement.
Separate research by Aviva shows that 11% of the over 55 age group have mortgage debt in the final decade or so before retirement.
More than 100,000 households are due to come to the end of their fixed-rate deals this month, according to the Financial Conduct Authority. Homeowners are facing the stark choice of choosing deals with hefty rates or face soaring costs by being moved on to their existing lender’s standard variable rate.
Santander made changes over the weekend, while TSB withdrew all of its 10-year fixed-rate deals on Friday with only a few hours’ notice. On Tuesday, Coventry Building Society will increase all of its two-, three- and five-year deals.
Other lenders, including Barclays, HSBC, NatWest, Virgin Money, Nationwide, Skipton, and Yorkshire building society, have all increased fixed-rate deals by up to 0.85% over the last week.
A further 640,000 homeowners have deals that come to an end in the second half of this year, as many of those that rushed to buy properties to take advantage of the Covid stamp duty holiday that came to a close in 2021 face renewals.
Last month, Office for National Statistics showed inflation had fallen to 8.7% in April, the first time it has been in single figures since last summer, but still higher than expected.
The slower than expected fall in the rate of inflation is fuelling predictions of another potential rate increase by the Bank of England.
Bank of England figures published last week showed that mortgage approvals fell from 51,500 in March to 48,700 in April, with overall mortgage approvals down 38% in the first four months of this year compared with the same period in 2022.
Nicholas Mendes, mortgage technical manager at John Charcol, commented: “There has been a correlation between property price and the length of the average mortgage terms increasing. Historically terms of 25 years would have been many applicants’ defaults option, but there has been a steady increase over the last few years with FTBs choosing to take the mortgage over 35 and 40 years.”
He continued: “FTBs are not the only applicants to have chosen to extend their terms, we have seen homeowners coming to the end of their fixed deal looked to extend also in light of increased mortgage rates and households’ expenditure such as utility and energy costs, look to extend to help soften their monthly outgoing.