Image source, Nicola Webb
- Author, Lora Jones
- Role, Business reporter, BBC News
Young homebuyers face significant challenges when it comes to getting on – and staying – on the property ladder.
Nicola Webb, a 34-year-old nurse, found she had little choice but to opt for an ultra-long mortgage when purchasing her first home last year.
It ends when she’s 68, but she says extending repayments is “the only way I can pretty much pay my mortgage as a single homeowner.”
“I haven’t known lower mortgage rates, so I just accept it for what it is.”
Despite managing to put down a hefty deposit for her £147,000 two-bedroom flat in Gloucestershire, Nicola’s five-year fixed-rate mortgage costs £598 a month – around a third of her monthly salary, after tax and student loans.
Once her student loans are paid off — or eventually written off — she hopes to reduce the length of her mortgage term from 35 years, or see if she can use any extra disposable income to pay off the overpayment.
She says she is grateful she was able to get on the housing ladder in the first place. Although mortgage costs make up a large portion of her income, she believes it is still cheaper than renting in her area.
“I had no luck renting at all… and for me it’s about keeping it as cheap as possible.”
Recent figures suggest Nicola’s situation is becoming more common.
Data from the Bank of England shows that hundreds of thousands of homeowners have taken out mortgages in the past three years that they will continue to pay into retirement.
While longer mortgage terms can make repayments more affordable in the here and now, homeowners will pay more in interest overall.
Some industry figures have also raised concerns that buyers may not be able to afford a mortgage once they retire and will raid their retirement savings to pay off their mortgage, leaving them with less to spend in old age. to live on.
But for some, a longer term of 35 or 40 years is seen as a temporary solution while they wait to see if mortgage rates will fall from relative highs.
Martin Tapper, a mortgage broker based in Essex, told the BBC that most first-time buyers he has advised this year have opted for a 40-year term.
“A young family can escape exorbitant rental costs to buy a home whose mortgage costs are much cheaper in the longer term,” he states.
He adds that he would only guide a client to these longer terms if they were of the ‘right kind’. to move house.
And, he says, it’s critical to get insurance that protects against payments becoming burdensome if someone’s health declines or someone loses their job.
For thirty-year-old Shane Lees, weighing the pros and cons of an ultra-long mortgage was a serious undertaking.
He and his partner are taking out a new mortgage so they can buy a three-bedroom house in West Sussex where they can start a family.
After talking to six or seven mortgage brokers, they decided to opt for a mortgage term of 35 years, with the hope of reducing this to 25 years at the end of a fixed term of two years.
Shane says it would be “affordable, but very inconvenient” if they wanted to buy a property at the top end of their budget over a 25-year period.
He believes that a longer mortgage term of around 5.5% appears to be the “sensible option at the moment” if he and his partner manage to find a property worth around £370,000.
The pressures facing younger homeowners like Shane are quite evident, with the sharp increase in the proportion of mortgages over state pension age.
The number of homeowners under the age of 30 taking out such a mortgage more than doubled in the two-year period, while the number under 40 rose by 30%.
But Sarah Coles, head of personal finance at Hargreaves Lansdown, says people shouldn’t expect lower interest rates if they reduce the term later.
‘Economists are constantly changing their expectations about when the Bank of England will cut interest rates.
“In January, some of them were already predicting cuts in March, and now we expect them this summer. Even then, cuts aren’t expected particularly quickly, so anyone holding their breath for much lower interest rates will have quite a burden to bear. waits on their hands.”
She suggests that people with 35- or 40-year mortgages need not only a plan to pay off the mortgage, but also a plan B for life’s “unexpected twists and turns.”
For example, if you’re taking your mortgage with you into retirement and expect to sell or downsize to pay off debt, you’ll need to think about what to do if you change your mind and want to continue living in your home, says she.
“It could be just what people need to make their mortgage more affordable, but they need to recognize the wider implications.”
For homeowners like Shane, it may be a gamble, but for him, it’s a risk worth taking right now.
Additional reporting by Bernadette McCague.
Ways to make your mortgage more affordable
- Paying too much. If you still have some time left for a low fixed interest rate, you may be able to pay more now to save later.
- Switch to an interest-only mortgage. It can keep your monthly payments affordable even if you don’t pay off the debt you incurred when purchasing your home.
- Extend the term of your mortgage. The typical mortgage term is 25 years, but 30 and even 40 year terms are now available.