'Abandoned' first-time house buyers fuel demand for 35+ year mortgages

Opposition Labour Party attacks government over trend showing major decline in homeownership among 50-year-olds in Britain

The UK's opposition Labour Party says that homeownership in middle age could drop to 30 per cent in the next 50 years. PA

Only a third of people born in Britain today will own their own house by the time they reach 50 years of age, the Labour Party said.

Accusing the government of "abandoning" first-time buyers, opposition shadow housing secretary, Lisa Nandy, referred to a study by the English Housing Survey, which showed the proportion of homeowners aged 45-54 had fallen from 74 per cent in 2009/2010 to 65.5 per cent in 2021/2022.

Separately, new research shows a strong increase in demand for longer-period mortgages - loans that are designed to be paid back over more than 35 years, rather than the standard 25 years. The average asking price for a first-time buyer home in the UK reached a record high of £224,963 in April, figures for property website Rightmove found this week.

The English Housing Survey attributed the fall to a reduction in the number of people who had mortgages, which fell over the period from 54 per cent to 49 per cent.

Correspondingly, there was an increase in the proportion of renters, from 12 per cent to 17 per cent.

From the figures, the Labour Party extrapolated a possible trend that would lead to homeownership falling to 30 per cent by the 2070s.

“The Conservatives have abandoned first-time buyers," Ms Nandy said.

“On their watch, homeownership rates have plummeted and mortgage costs have soared, and now [Prime Minister] Rishi Sunak has prioritised appeasing his own MPs over building the houses we need."

Ms Nandy added that a Labour government would set a homeownership proportion target of 70 per cent.

“We will reform planning to get more homes built and actively support first-time buyers with a comprehensive mortgage guarantee scheme and by giving them first dibs on new houses in their area," she said.

Missed targets

Ms Nandy's comments came after the National Association of Property Buyers (NAPB) claimed the government was missing its own target of building 300,000 houses a year.

The NAPB said about 500 houses were being built a day, but that the government’s target requires a daily construction rate of about 830 houses.

“The rate of new builds is not even keeping up with demand, let alone doing anything to put right the backlog of property building that has developed over decades," said Jonathan Rolande, director of the NAPB.

“Population growth and the increases in the formation of households mean that more people are competing for relatively fewer properties to buy or rent like some awful game of musical chairs.”

In its latest survey of house prices released this week, the property website Rightmove put the cost of the average first home at £224,963 ($280,754) in March, up £890 in just one month.

First-time homes – which Rightmove describes as having no more than two bedrooms – now cost £4,411 more than they did in March last year.

Help for first-time buyers

There is some help available for first time buyers.

Under a government run scheme called First Homes, buyers can be eligible for a discount on the asking price of between 30 per cent and 50 per cent, provided they qualify for a mortgage for at least half the cost.

Also, the combined household income of anyone applying for a First Homes discount can be no more than £80,000, or £90,000 in London.

The home should be a new home built by a developer or a home bought from someone else who originally purchased it as part of the scheme. There are also some restrictions determined by local councils.

The scheme, which is available only in England, was part of Boris Johnson's levelling-up agenda, and featured in the Conservative Party's election manifesto in 2019.

However, Labour MP Mike Amesbury recently claimed that so far, just 35 homes have been sold under the scheme.

The government said it will take time for the scheme to bear fruit.

There is also the Mortgage Guarantee Scheme, which is open to first-time buyers and those who are already on the property ladder and have a 5 per cent deposit.

But while this scheme covers some of the mortgage should the homeowner fall on hard times and the property is repossessed, it is of limited use to first-time buyers in relation to affordability and will expire at the end of the year.

The rise of the 35+ year mortgage

There has been a surge in demand for longer-term mortgages, according to data from the banking trade body UK Finance.

Standard mortgages normally run for 25 years, but in an effort to get on to the property ladder, many first-time buyers are now opting to spread the cost of a mortgage over many more years.

Just over a year ago, in February 2022, a mere 8 per cent of all first-time buyer mortgages had a term longer than 35 years. A year later, that had risen to 18 per cent.

Meanwhile, the UK Finance figures also showed that the number of 30-year to 35-year mortgages increased from 34 per cent to 38 per cent during the same period.

“These marathon mortgages keep the initial monthly costs down, but as we all know there’s no such thing as a free lunch, and loans stretched over such a long period come with significant extra costs," said Gary Smith, financial planning partner at the wealth manager Evelyn Partners.

“Even though a borrower might not intend to keep the mortgage product over the full term, they will probably pay more interest and the overall cost of the loan will be greater than a shorter-term mortgage."

“Very little capital is paid off in the early years and this will probably reduce the equity built up in the property – unless overpayments are made," Mr Smith added.

First-time buyers can also look to niche lenders to give them the boost that gets them into the homeownership club.

Normally, lenders employ the standard four-times salary formula, when determining eligibility for a mortgage, but there are some smaller lenders that will stretch loan sizes to six times an applicant's salary.

Housing demand is high and the supply of help for the first-time buyer is low, so, as with most things, it pays to shop around.

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