An increasing number of first-time homebuyers are committing to mortgage terms extending beyond 35 years, setting a new record as they grapple with rising borrowing costs.

As the curtain fell on 2023, the property market witnessed a significant trend: nearly one in four first-time buyers chose mortgage durations that spanned over 35 years. This development comes in the wake of borrowing costs reaching their peak towards the year’s end, according to UK Finance, a leading trade association. The figures are telling; 23% of all home loans secured by newcomers to the property market were for terms longer than 35 years. This is a substantial increase from 17% the previous year and a mere 9% when the Bank of England began its interest rate hikes at the end of 2021.

The Cost of Affordability

While opting for a longer mortgage term can make monthly repayments more manageable, it’s a double-edged sword. Over time, borrowers may find themselves saddled with significantly higher debt levels — a financial burden that could extend into their golden years. The trend towards mortgages of more than 30 years now represents over a third of all deals struck by first-time buyers, marking a departure from the traditional 25-year mortgage, which was once the standard.

The Changing Tide of Mortgage Lending

UK Finance highlights an acceleration in the preference for mortgages extending beyond 35 years as borrowers seek affordability. “We are seeing a continued, more rapid increase in borrowing for more than 35 years,” noted a spokesperson for the organisation. This shift is largely driven by the need to pass increasingly stringent affordability tests, which, despite longer terms, still leaves many prospective homeowners out in the cold, contributing to a marked reduction in lending volumes observed last year.

A Waiting Game for Many

At the close of last year, around five million mortgage holders had yet to refinance their loans to accommodate the higher interest rates introduced by the Bank of England. With rates having escalated from a mere 0.1% to 5.25%, the financial situation for current and aspiring homeowners has become increasingly complex. However, there’s a glimmer of hope as investors anticipate a potential downturn in the base rate later in the year.