Savvy millennials opt for repayment mortgages
Whether out of choice or necessity, millennials are far more likely to have a repayment mortgage than older borrowers.
Nine in ten (92%) of 18 – 34-year-olds are on a repayment mortgage, against 68% of those aged 55 and over, according to research from L&C Mortgages. Unsurprisingly, they also have the highest monthly repayments at £908 vs £430 for the over 55s.
Millennials have suffered from the lack of availability of interest-only mortgages in the wake of the 2007 global financial crisis. Although interest-only mortgages have made a reappearance in recent years, they have often been limited to higher earners or those with a significant deposit.
However, there are also signs that the younger generation prefer a secure option. Seven in ten (69%) opted for a fixed rate deal, and a quarter have remortgaged to get a better deal, higher than any other age group. Only a third (35%) of over 55s have a fixed rate deal and only 18% have remortgaged.
Similarly, those aged 18-35 are most likely to have remortgaged to reduce their monthly payments (34%), again beating the older generations, with only 19% of those aged 55 and over citing this as a reason for remortgaging.
Concerns have been raised about the number of older borrowers with interest-only mortgages. The FCA estimates that 600,000 interest-only borrowers will see their mortgages mature before 2020 and many have little provision in place to pay off the capital. Recent statistics from the Equity Release Council show that around a quarter of its products are being used to pay off interest-only loans.
David Hollingworth from L&C Mortgages, said: “Our research shows that young people are, on the whole, taking the savvy steps needed to ensure they haven’t bitten off more than they can chew in terms of covering their mortgage payments. Using a fixed rate mortgage is a good way of managing what is most likely your biggest outgoing.”
A third (33%) of 18-34 year olds have taken out an offset mortgage. Of those with an offset mortgage, a quarter (24%) used their savings in order to reduce their term, and 10% to reduce their monthly payments. In contrast, only 11% of those aged 55+ have an offset mortgage and use their savings against their mortgage.
See YourMoney.com’s guide to Offset mortgages for more information.