Borrowers are increasingly looking to longer term mortgages of 30 years or more to reduce their monthly payments due to rising house prices.
The Sunday Telegraph reports 20 per cent of the 171,000 new mortgages taken out between April and June were for 30 years or longer, compared with 18 per cent in the previous quarter, according to data from the Council of Mortgage Lenders.
First-time buyers are also spreading their payments over longer terms, with 28 per cent of all new first-time loans in Q2 taken out over 30 years or more, compared with 26 per cent in Q1.
Only 4.5 per cent of all new mortgages were for more than 30 years ten years ago.
The CML believes borrowers are opting for longer term mortgages in the wake of rising property prices and fears of a hike in interest rates, which mean borrowers are struggling to meet their monthly payments. It says the increase in 30-year mortgages is also due to the Mortgage Market Review making affordability checks tougher to pass.
Last month Bank of England deputy governor Andrew Bailey warned longer-term mortgages could create a problem for borrowers, should their income fall in later life.
He said: “We have to watch this very carefully, because if mortgages extend beyond the point at which people’s income falls off, then we have a long-term problem.”
Your Mortgage Decisions director Dominik Lipnick said at the time: “Without a doubt, 30 or 35-year mortgages are becoming the new 20 and 25-year terms. People will borrow for longer as house prices continue to rocket – which they will until the supply-side issues are seen to.
“The market certainly needs to reflect the fact that people are working for longer and living longer. Policymakers need to help the situation by actually building the extra houses they so often talk about.”