One in four first-time buyers opts for a 35-year mortgage
Written on 12 January 2016
First-time buyers continue to underpin the housing market. Last year there were around 310,000 first-time buyers and they accounted for almost half (46 %) of all house purchases made with a mortgage, says Halifax Building Society.
The average price paid by first-time buyers for a home was £190,180 – that’s 10% higher than the previous year. The average deposit was 13% higher than in 2014 at £32,927 although the amount varied across the UK. In the South East the average deposit was up 24% at £44,024 and in Greater London it was a whopping £91,409.
Despite higher prices, favourable economic conditions have helped people get on the property ladder, says Craig McKinlay, mortgages director at Halifax.
“For the second year in succession, the number of buyers getting on the first rung of the housing ladder has reached 310,000. Although the average price of the typical first-time buyer home has grown by 10% in the past year, the number of buyers taking that first step onto the housing ladder has been supported by favourable economic conditions; namely, record low mortgage rates, rising employment and real pay growth,” he said.
Longer mortgage terms
First-time buyers are increasingly taking out mortgages which let them spread their repayments over a longer period, says the UK’s largest mortgage lender .
While 25-year mortgages have been the norm for some time, one in four (26%) first-time buyers now takes out a 35-year mortgage compared with 16% in 2007. This has been accompanied by a fall in 20 to 25 year mortgages from 48% to 30% over the same period.
Cost of a longer mortgage term
While a longer mortgage term can help reduce monthly repayments and make the debt more affordable, it also means the borrower ends up paying more for the loan. This is because they have to pay interest on the loan for a longer period. So the cost of a 35-year mortgage which charges the same rate of interest as a 25-year one will end up costing more.
But it’s worth noting that if you take out a 35-year old mortgage, you can usually make overpayments each month which will help reduce the term and the overall cost of your mortgage.
You can find out more about how much a mortgage might cost at different rates of interest and over different periods of time in our guide How much will my mortgage cost? And for ideas on how to repay your mortgage early see our guide.
Help with the cost of buying a home
The Government has just introduced a new scheme to help first-time buyers save up for a deposit on a home. As well as offering the usual tax breaks associated with ISAs, Help to Buy ISAs also pay a bonus worth up to £3,000. You can find out more about Help to Buy ISAs in our guide.
Other help for first-time buyers includes the Government’s Help to Buy scheme for those with a small deposit, shared ownership schemes and Right to Buy for people who rent their home from their local council or housing association. You can find out more about these on the Money Advice Service website.
For more ideas on how to organise your finances when planning to buy a home and information on the various types of mortgages available, see our mortgage guides.