Longer mortgages the norm for first-time buyers

Posted on Thursday, January 21, 2021

The majority of first-time buyers are opting for longer-term mortgages, shows a new report from Nationwide.

In 2010, nearly half – 45% – of FTBs chose a mortgage with an initial term of over 25 years. By 2020, this had risen to 70%.

Nationwide says that increasing a mortgage term from 25 years to 35 years adds 40% to the total interest paid on the loan.

As well as this, raising a deposit continues to present a challenge. While the house price to average earnings ratio has dipped slightly since 2007’s record high –from 5:4 to 5:2, this still means that a 20% deposit is the equivalent to 104% of the pre-tax income of an average full-time employee.

This compares to 87% ten years ago.

There is, of course, significant differences in each region. In London, it would take the average full-time wage earner just under 16 years to save a 20% deposit, while in Scotland and the North of England, five and a half years.

And lower borrowing costs change the picture slightly. Nationwide senior economist Andrew Harvey says: “FTB mortgage payments (based on an 80% LTV mortgage, at prevailing mortgage rates) are currently slightly below the long run average, at 28% of take-home (net) pay.

“Affordability improved significantly between 2007 and 2009, primarily due to the fall in house prices in the wake of the financial crisis, and remained low, thanks to the decline in borrowing costs to all-time lows.”

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