The traditional 25-year mortgage could be on the way out, with growing numbers of first-time buyers opting for deals lasting 30 or 35 years – suggesting that many will still be burdened with home loan debt in their 60s and 70s.
The Halifax said that in 2016, about 28% of all first-time buyers with a mortgage opted for a 30- to 35-year term – up sharply from 11% in 2006.
Meanwhile, the average price first-time buyers are paying hit a new high last year, passing the £200,000 mark for the UK as a whole, and rising above £400,000 in London.
With high house prices, student debts and a rise in the age at which couples have children, many people are tending to buy a home later and opt for a longer repayment term. According to the Halifax, the average age of a first-time buyer is now 30, though this disguises regional variations. The average figure for London is 32, but in certain boroughs, such as Barnet and Ealing, and locations such as Slough in Berkshire, it is 34.
Stretching the term of the loan reduces monthly payments, which can seem attractive to those with tight finances. The Halifax offers mortgage terms of up to 40 years and said that with a repayment mortgage, the longer the term, the lower the monthly payment.
However, it warns potential borrowers: “It will take you longer to pay off the loan, so you will pay more interest. This means it will cost you more over the life of your mortgage.”
This trend means that mortgages that last into retirement are becoming more common. Traditionally, many lenders would only grant a mortgage up to an individual’s planned retirement date.
In its report, the Halifax said that as the cost of a typical first home has risen, there has been a growing trend towards mortgage terms longer than the traditional 25 years.
In 2006, almost two-thirds (64%) of first-time buyers opted for a term of between five and 25 years, while the remaining 36% were over 25 years. Ten years on, the picture is dramatically different: 60% of first-time buyer mortgages involve a term of at least 25 years.
In 2016, the average price paid by someone who had never owned a property before was £205,170 – the highest on record. At the height of the housing downturn in 2009, the figure stood at £135,254.
In London, first-time buyers have seen the average price rise by 81% since 2009 to reach £402,692 – again, the highest on record.
Letting agents are anticipating rent increases in 2017 ahead of the tenant fees ban.
ARLA’s November Private Rental Sector Report found the number of tenants experiencing rent increases continued to decrease, at 16%, from 18%, but this could all be set to change.
Following the Chancellor Philip Hammond’s announcement to ban letting agent fees for tenants during his Autumn Statement, eight in ten agents expect to see rent hikes in 2017.
The report found the number of rental properties managed per branch was 185, an increase from 180 in October, but lower than the 193 recorded in September.
Demand from prospective tenants fell again in November to 32 prospective tenants registered per letting agent branch, compared with 34 in October, however 53% of agents expect to see a rise in demand next year.
David Cox, managing director of ARLA, said: “The number of rent hikes reported by letting agents continued to decrease in November, and it’s a shame the ban on letting agent fees will have the opposite impact on rent prices when the measure comes into force.
“The buy-to-let market is becoming less attractive for investors as the ban on fees, combined with the scrapping of mortgage interest relief and the stamp duty increase on second homes push costs up for landlords. So unfortunately, regardless of the uplift we saw in supply this month, we expect to see the number of properties available to rent fall next year.”
Sales volumes of prime homes right across the country have been hit hard, cutting the Government’s take from Stamp Duty Land Tax by millions. Asking prices have also been sharply reduced, as the top end of the London market has crashed.
In the six months from May to October there was a 75% reduction in sales of properties above £10m – down to just 15 from 61 in the same period last year.
There was also a 51% reduction in sales between £5m and £10m – a fall from 201 to 99.
There was also a 33% drop in sales between £1m and £2m (7,285 falling to 4,913) and a 36% drop in sales between £2m and £5m (down from 1,473 to 947).
Worst affected was the prime new-build sector where there was a 83% reduction in the number of sales of new homes above £5m. This equates to a fall from 52 in the same period last year to just nine in the six months from May to October.
According to analysis of Land Registry figures by investment firm London Central Portfolio, the reduction in sales activity above £1m between May and October could have cost the Exchequer nearly £500m.
The firm says that the fall could be as much as £1bn by the end of the financial year.
London Central Portfolio CEO Naomi Heaton said: “This slowdown in the luxury property market – a big contributor for the Exchequer and UK economy in general – is very concerning, particularly as the Government faces wider economic and financial instability in the face of Brexit.
“With an already increasing deficit to address and the Government’s declared intent to increase tax revenues, these statistics should make some worrying reading for Chancellor Hammond.
“Having missed the opportunity to reconsider Osborne’s strategy at the Autumn Statement, we hope the Government will now look to relax some of these measures before there are detrimental knock-on effects for developers, the Exchequer’s balance sheet and the wider UK economy.”
Most of Britain’s most expensive homes are concentrated in London, where high-end agents have made job cuts and developer Berkeley Homes has slashed its prices by around 10%.
Separate research, by Propcision, has also shown huge cuts, of up to 46%, in asking prices of some London properties.
Michelle Ricci, co-founder of analyst firm Propcision which has an ‘add on to Rightmove’ which is neither approved nor authorised by the portal, said some of these properties had ambitious pricing to begin with. Her research shows that since June, the price cuts became more concentrated in central London as the Brexit vote compounded pre-existing problems in the market.
The blame on the central London housing market crash has been put on an increasingly harsh tax regime scaring off wealthy purchasers.
While there might not be much sympathy for this segment, there must nevertheless be concerns about a market that needs to flow freely from top to bottom.
Specifically, as agents know, what historically happens at the top end of the market tends to ripple down – and that what happens in London, tends to spread out.
The property rental market is booming at the expense of the sales market, making it look as if house-buying will be outstripped for the first time in eight decades next year, as home-buyers face a continued struggle to find properties they can afford.
Activity in the sales market has cooled since June’s Brexit vote and a lack of property for sale combined with rising prices are set to lead to more new lets than purchases, the UK’s largest estate agency chain, Countrywide, said.
Johnny Morris, research director at Countrywide, said: “As some would-be buyers and sellers sit on their hands, Brexit-induced uncertainty has continued to boost the rental market … September saw record activity, with increasing numbers of lets agreed and tenants choosing to renew their contracts. On current trends 2017 could be the first time since the 1930s that more homes are let than sold.”
Separate reports suggest that affording a new home is becoming increasingly difficult for would-be buyers, with asking prices rising since the summer and borrowers having to find bigger deposits than in 2015.
Moving costs have increased £870 in the past year to £10,996, according to the research by Lloyds. The figure takes into account stamp duty, estate agency fees and home removal costs, as well as conveyancing fees and the price of an energy performance certificate.