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First-time buyer ages rise and deposits fall

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Mortgages for borrowers with a 10% deposit or less are at a post-financial crisis high

The age of a first-time buyer has risen on average to 34 from 28 in 2007, research found.

Borrowers aged 36-40 and above typically put down a deposit of at least 25 per cent, called a ‘tipping point’ for access to lower mortgage rates, according to the latest figures released by Royal London.

The report found that borrowers below this age usually borrow more than three quarters of the value of their property.

Older homeowners have larger deposits

In 2007, the majority of 31-35 year-olds were also able to find a 25 per cent deposit, but by 2013 most of that age group were borrowing more than 75 per cent.

In the decade since the financial crisis there has been an increase back up to 2008 levels in the number of borrowers in all age brackets with relatively small deposits in the five-to-25 per cent range.

However, loans above 95 per cent have remained a negligible part of the market since 2008.

The age at which homebuyers are borrowing less than 30 per cent of the value of their property has also risen in recent years. Back in 2007, borrowers had reached this point when they were 51 – 55, but in 2018, it was not until they were aged 56 -60 that homebuyers were stumping up at least 70 per cent of the equity.

The data also suggested that the majority of homeowners aged 51 or over who take out new loans are taking out a mortgage for less than half the value of their home.

In 2018, 46 per cent of borrowers aged 18 to 25 borrowed more than 85 per cent of the value of their home.

LTVs rise among older generations

The report also showed that the proportion of borrowers taking out loans between 90 and 95 per cent has risen to levels not seen since 2007/2008 for all homeowners under the age of 50.

However, the proportion of borrowers above retirement age borrowing 30 to 50 per cent of their property’s value has been steadily rising since the financial crisis, with 27 per cent of 66- to 70-year-olds now taking out new mortgages with an LTV between 30 and 50 per cent, up from 21 per cent in 2009.

Among 71- to 75-year-old new mortgage applicants, 26 per cent are now borrowing between 30 and 50 per cent of their home’s value, up from 23 per cent 10 years ago.

LTV for new homeloans is rising

Becky O’Connor, personal finance specialist at Royal London, said that moving up the housing equity ladder helps borrowers access better interest rates and makes homeownership more affordable.

She added: “But as the age of first-time buyers has risen, families are having to wait until later in life before they make a serious dent in their mortgage and can benefit from lower rates.

“In the last 10 years, the lie of the land has changed significantly for borrowers as a result of the financial crisis, changes to the way mortgage lenders assess affordability and rising house prices.

“For those who already own their home, house price inflation is a windfall, giving them a bigger deposit when they remortgage and enabling them to access lower mortgage rates.

“But those still waiting to buy a home when house prices rise must stretch to a higher loan-to-value initially and then face the likelihood of being stuck paying higher rates on the higher LTV for longer if house price growth remains relatively flat.”

She noted that with house price growth leveling-off, it could potentially take these younger, more stretched borrowers longer to get their loan-to-value level down than was the case for homeowners who got on the ladder some years ago and benefited from big house price gains.

“However even within older age groups, the data shows the LTV level for new home loans is rising,” she added.

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