UK Finance’s latest Household Finance Review found that one in five first-time buyers took out a mortgage of at least 35 years in 2023, compared with fewer than one in 10 in 2022
Soaring house prices and borrowing costs have driven a sharp increase in homebuyers taking out loans of 35 years or longer, finds new data.
Banking trade body UK Finance’s latest Household Finance Review found that one in five first-time buyers (FTBs) took out a mortgage of at least 35 years in 2023, compared with fewer than one in 10 in 2022.
Borrowers struggling with affordability pressures often choose longer mortgage terms to lower the cost of their monthly payments.
In the meantime, the number of home loans to FTBs slumped 22% from the previous year to its lowest level since 2013. Mortgage lending dropped across the board as borrowers struggled with higher interest rates and the cost-of-living crisis.
Home movers were hit the hardest, with loans dropping 26% to 251,000 – their lowest level since 1974.
Despite the weakness of the mortgage market, the number of applications for home loans rose in the last quarter of 2023 as inflationary pressures eased and borrowing costs moderated.
Mortgages in arrears of 2.5% or more rose for a fifth consecutive quarter in the final three months of 2023 to 107,250. This figure is up 32% year-on-year, although still represents less than 1% of total outstanding mortgages. UK Finance expects arrears to keep increasing in 2024, although at a slower pace.
In the meantime, the number of possessions remained largely flat last year totalling 4,620, with most being long-term cases from before the pandemic.
The group also found that personal savings levels dropped each month last year – the first time this has happened in 25 years – as households raided their rainy-day funds to cover higher bills.
UK Finance added that households were managing unsecured debt well despite the cost-of-living crisis, with overdraft debt remaining on a downward trend and half of all credit card balances being interest-bearing – the lowest proportion since UK Finance’s records began in 1995.