Longer mortgages of 30 years and over are becoming a reality in the UK as demand soars due to rising house prices, inflation and low wage growth, a new report suggests.
The majority of independent mortgage brokers believe that the rise in demand for longer home loans is inevitable and not likely to slow, according to the latest report from the Independent Mortgage Lenders Association (IMLA).
Overall some 69% of mortgage brokers report an increase in demand for 35 year mortgages with 13% reporting a substantial rise in demand in the first six months of 2017.
Some 77% of brokers and 74% of lenders say increase in demand for 35 year term mortgages is an inevitable consequence of low wage growth and rising house prices and the industry believes such lengthy loans must be on offer although there are concerns about their impact on capacity to save for retirement.
‘In recent years, rising house prices, inflation and low wage growth have put significant pressure on prospective buyers’ incomes, meaning that many would-be borrowers now have to spread their payments out for longer periods in order to get a loan and to qualify for a mortgage under the affordability tests now in place,’ said Peter Williams, executive director of the IMLA.
He pointed out that recently the PRA raised concerns about longer term mortgages and their negative impacts. In reality, around a third of first time buyers take out a mortgage with a term of over 30 years and most of these are for less than 35 years.
And the majority of brokers and lenders, 62% and 68% respectively, agree that longer term mortgages are an essential option for aspiring home owners and would argue that this is a response to reality and remains responsible lending.
‘However, this in no way lets the Government off the hook in needing to act swiftly to address the housing crisis. With many borrowers struggling to make home ownership a reality, it is recognised that the growing recourse to longer term mortgages could impact upon people’s capacity to save for retirement albeit this is offset to a degree by the purchase of a property asset,’ Williams explained.
‘In order to prevent retirement saving and home ownership becoming mutually exclusive, Government and policymakers have a responsibility to tackle the root of the chronic supply/demand crisis facing the UK,’ he added.