Soaring house prices push buyers to stretch out repayments
08-18-2015
The proportion of buyers looking for mortgages of 30 years or more has doubled in the past 12 months
Woman looking in estate agent's window
Housebuyers are looking for longer-term loans to help spread out the repayments - but the interest bill will be bigger in the end Photo: ALAMY
By Tim Wallace
House-buyers are increasingly searching for mortgages with terms of 30 years or more, as high prices force desperate borrowers to look for a way to reduce their monthly payments.
More than one-fifth of buyers searched for a very long-term loan in the second quarter of the year, according to brokerage service the Mortgage Advice Bureau – up from just 8pc in the same period of 2014.
The proportion has leapt as house prices continue to climb, forcing hard-pressed borrowers to find ways to make their money go further.
House prices rose by 6pc over the past year, with strong demand and a shortage of supply continuing to push up the cost of buying. By contrast, wages rose by an average of 2.4pc in the last 12 months, failing to keep pace with the property market.
Buyers are increasingly looking to lock in low interest rates before the Bank of England acts to push up the cost of borrowing.
The average mortgage taken out to buy a home between April and June stood at £151,668, the MAB said.
If that is stretched over 25 years, the monthly repayment stands at £634. By contrast, spreading that over 30 years brings the monthly bill down by £83 to £551, and stretching it out to 35 cuts the regular cost again to just £493 per month.
However, the longer time period also means interest accrues for longer, resulting in a bigger overall bill.
The 25-year loan would result in an overall interest payment of £91,385. Over 30 years that rises by £23,297 to £114,683. And a 35 year loan would come with a final interest bill of £139,092.
By contrast those already with houses are cashing in on the enormous equity gains they have received as house prices have shot up.
The proportion looking for a remortgage deal with a term of below 15 years has risen from 5pc to 8pc over the last year, while the proportion looking for a 15- to 24-year remortgage loan has risen from 9pc to 13pc.
At the longer end the number searching for a loan with a term of 25 to 29 years is down from 85pc to 76pc.
“For those fortunate enough to own their home, it is unsurprising that they are looking to capitalise on the profit levied from record house prices by remortgaging,” said the MAB’s head of lending Brian Murphy.
“Even more so, they can get rid of their debt quicker and reap the benefits of smaller total repayments as homeowners can often access lower rates thanks to their equity gains.”