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First-time Buyer

Half of first-time buyers opt for longer 30-year mortgage terms

Paloma Kubiak
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Paloma Kubiak

More than half of borrowers buying their first property and a quarter of those moving home in Q3 2022 took out longer mortgage terms of 30 years or more.

This is up from the one in four first-time buyers and a tenth of homemovers doing the same just a decade ago, according to trade body UK Finance. 

The association said people were already choosing to borrow over longer periods to ease affordability and this had been on the rise since the 2008 financial crisis. However, this accelerated in 2021. 

UK Finance said although this decision was relatively low risk, it could impact borrowers’ ability to save for a pension or invest in other areas as they would be paying towards their mortgage in later life. 

“It also limits the potential to use term extensions as a forbearance tool, should the customer subsequently experience a period of financial difficulty,” it added. 

UK Finance said wages and income multiples had not risen to meet rapid house price growth but instead, the incomes of new borrowers had increased. During Q3, the average income used for a first-time buyer was just under £60,000, a 17% rise on the same period a year ago. 

Steady house purchase activity 

The data revealed house purchase activity was relatively flat year-on-year, following the post-stamp duty holiday adjustment. 

It said since Q4 2021, each quarter had recorded continuous annual declines in activity but in Q3 2022, activity rose slightly to just under the levels seen in Q3 2021 during the final months of the stamp duty exemption. 

Discounting the effects of Covid-19 and the stamp duty holiday, UK Finance said house purchase trends were similar to pre-pandemic levels. 

The association said this suggested 2022 was a “normal year” for purchases but looking ahead, demand was expected to soften. 

UK Finance said the turmoil caused by the mini Budget would not be evident in Q3’s data as it occurred in the last few days of the period. 

Stricter affordability sees shift to product transfers 

UK Finance said refinancing activity was strong in Q3 but unlike Q2 where there was a rise in external remortgaging, there was a shift back to internal product transfers. 

It said this was driven partially by the maturity schedules of lenders and their retention strategies but also noted that the stricter affordability tests required with remortgages may have resulted in the trend. 

During the period, there was an uplift in the sale of remortgages arranged through a broker, both with and without equity withdrawal. UK Finance said remortgagors typically refinanced independently as they were more experienced in the mortgage market, but the difficulty and reduced options prompted the use of advisers. 

Elsewhere, the jump in mortgage rates coupled with an 11% reduction in disposable income after refinancing, meant borrowers were left with 17% less financial wiggle room compared to when they took the mortgage out.  

This would leave people with less than a fifth of their net income left over on average.  

Arrears and repossessions  

Despite pressure on household finances and the rising base rate, the data showed there was no headline impact on the number of mortgage arrears. 

By contrast, arrears saw a nominal decrease in Q3 with 80,180 mortgages in arrears representing over 2.5% of the outstanding mortgage balance. This was 540 fewer than at the end of Q2. 

However, UK Finance said there had been a “modest increase” in the number of arrears which were less than 2.5% of the outstanding mortgage balance, which it does not count as part of its headline arrears. It said this rise could become evident in headline numbers by Q4. 

Possession numbers continued to slowly rise as cases which were paused during the pandemic fed through. 

There were some 1,120 possessions in Q3, up from 960 in Q2, but this is still low when compared to 2019 which UK Finance said was already starting from a low base.