Mortgage market misery has stepped up for homebuyers as lenders continue to increase borrowing rates and pull deals, prompting record numbers to take out loans of more than 35 years in an attempt to make monthly payments more affordable.
A record 19% of all loans taken out by first-time buyers in March were for terms of 35 years or longer, with more than half taking a loan of more than 30 years, as house-hunters seek to make the soaring cost of loans more affordable.
This is the highest proportion since records began in 2005, the trade body UK Finance is expected to say this week, and more than double the 9% rate in December 2021, when the Bank of England started raising interest rates from a low of 0.1%.
The data is also expected to show that 8% of home movers are taking out mortgages for terms of 35 years or more, compared with 4% in December 2021.
While the move to spread out the period of the loan makes it more affordable on a monthly basis for homeowners trying to cope with the cost of living crisis, over the lifetime of the mortgage they will pay significantly more interest and could be laden with debt into their retirement.
The figures, which form part of a report due to be published by UK Finance this week, come as lenders continue to raise rates and pull deals in the volatile and turbulent mortgage market.
More than 100,000 households are due to come to the end of their fixed-rate deals this month, according to the Financial Conduct Authority. Homeowners are facing the stark choice of choosing deals with hefty rates or face soaring costs by being moved on to their existing lender’s standard variable rate.
Santander, the UK’s third-largest lender, took the rare action of making changes over the weekend, while TSB withdrew all of its 10-year fixed-rate deals on Friday with only a few hours’ notice. On Tuesday, Coventry Building Society will increase all of its two-, three- and five-year deals.
Other lenders, including Barclays, HSBC, NatWest, Virgin Money, Nationwide, Skipton, and Yorkshire building society, have all increased fixed-rate deals by up to 0.85 percentage points over the last week.
A further 640,000 homeowners have deals that come to an end in the second half of this year, as many of those that rushed to buy properties to take advantage of the Covid stamp duty holiday that came to a close in 2021 face renewals.
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Last month, Office for National Statistics showed inflation had fallen to 8.7% in April, the first time it has been in single figures since last summer, but still higher than expected.
The slower than expected fall in the rate of inflation is fuelling predictions of another potential rate increase by the Bank of England.
Bank of England figures published last week showed that mortgage approvals fell from 51,500 in March to 48,700 in April, with overall mortgage approvals down 38% in the first four months of this year compared with the same period in 2022.