Lenders raise the alarm about a ‘rapid increase’ in mortgages for 35 years

The banks have raised the alarm about a “rapid increase” in people borrowing mortgages for more than 35 years. Nearly one-fourth of first-time homebuyers are now borrowing to retirement.

New figures from UK Finance reveal that 23 percent of first-time homebuyers extended their mortgages to 35 years or more in December. They did this because they wanted to be able get on the property ladder.

It is an increase from the 17pc rate a year earlier and only 9pc prior to the Bank of England starting to raise interest rates in December 2021 from a low of 0.1pc.

The Bank has warned that homeowners who take out longer mortgages are at risk of future debt problems.

According to Savills the average age of first-time buyers is 34, which means that many mortgagees may borrow until their late 60s.

UK Finance data shows that 10 percent of those moving home take out mortgages with a term of 35 years or more.

The rate is expected to be more than twice as high in December 2021.

UK Finance spokesperson said: “We have seen a continued and more rapid increase in borrowing over the past 35 years.” If customers use term extension to make their loans more affordable, they need to extend the term further.

The banking lobby group released an analysis on Monday that showed first-time homebuyers would need to borrow for 72 years to bring their mortgages back up to the levels of 2022 due to the impact of rising interest rates.

The industry body attributed a “significant contraction” in mortgage lending to a growing number of young people who are unable get on the property ladder.

Robin Down, an HSBC analyst, said that there are 1.3m fewer homes with a mortgage today than 20 years ago. Young people are more likely to rent their home rather than buy one.

This is “a problem for UK mortgage lenders,” Mr Down said.

He said, “First-time buyers (FTBs) are the ones who drive growth in UK mortgage lending.” As FTBs have declined, so too has the growth of the UK mortgage market. Over the last 15 year we’ve only seen an average annual growth rate of 2.3pc.

The growth rate was around 10% per annum in the decade prior to the financial crisis.

UK Finance spokesperson added: “High house prices, rising inflation, and increasing interest rates have all contributed to the affordability of mortgages, which is why we saw long-term borrowing rise much more quickly.”

The maximum term for a mortgage in the UK can be up to 40 years. However, UK Finance said: “Even though this term allowed some lending, many borrowers still failed the affordability test, which led to the dramatic drop in lending volume that we experienced last year.”

Around 5m mortgage holders still had not refinanced to higher interest rates by the end of last. The Bank increased rates from 0.1pc up to 5.25pc. However, investors expect that the base rate will start to come down later this year.

As we enter the first months of 2024 we will likely see the price reductions that started late last year start to translate into a boost in mortgage completions.

As we have noted earlier, the data on applications suggest that [the first quarter of 2024] may indeed be a time of growth. The affordability of mortgages remains stretched to the point that many potential customers will not be able access credit even if they borrow for a longer period.