A notable shift has been observed in the mortgage landscape, where a growing number of young homeowners are embracing longer mortgage terms to navigate the financial demands of owning a home. Amid escalating living costs and persistently high property prices, ‘marathon mortgages’ emerge as a viable solution for many. These extended repayment plans stretching 35 years or more offer the allure of reduced monthly payments.
Treading the Marathon Mortgage Path
The term ‘marathon mortgages’ refers to a mortgage repayment plan extending for 35 years or longer, significantly more than the conventional 25-year term. The main driver behind this shift is the desire to bring down monthly mortgage payments to a more manageable figure, especially appealing to individuals under the age of 30.
According to recent data disclosed by Experian, a credit data firm, there’s a noteworthy uptick in the adoption of marathon mortgages. Their analysis uncovers that between January and March of the current year, a quarter of new homeowners aged 29 and below opted for a repayment term of 35 years at the very least. This figure starkly contrasts the historical average of about 10% recorded in January 2020.
The Attractiveness of Lower Monthly Payments
The rationale behind this mortgage trend is quite straightforward—lower monthly payments. With living costs on an upward trajectory and property asking prices remaining high, first-time buyers and movers are finding marathon mortgages an attractive option. Lenders are meeting this demand by offering mortgage terms stretching as far as 40 years in some deals.
James Jones, the head of consumer affairs at Experian, points out that the data suggests a propensity among individuals under 30 to secure longer mortgage repayment terms, aiding in keeping the monthly repayments on their homes within a manageable range. This trend, he notes, could also be influencing property-buying decisions among house hunters.
Approaching the Retirement Finish Line with Mortgage in Tow
One glaring implication of marathon mortgages is the age at which homeowners will complete their repayment. Some individuals will be nearing retirement, or might already be retired when they finally achieve mortgage freedom. This is a deviation from the norm where a standard mortgage would run for 25 years, typically allowing homeowners to own their homes outright well before retirement.
The high interest rates prevalent in the market further amplify the pressure on borrowers, especially the young, who may feel ‘locked in’. Jones encourages individuals to explore avenues that might avail better deals on their mortgage terms to alleviate some of this pressure.
Noteworthy Statistics and the Current Mortgage Landscape
Earlier in the year, UK Finance, a trade body, reported that a record 19% of all loans taken out by first-time buyers in March had terms of 35 years or longer. More than half of these buyers took a loan extending beyond 30 years.
This new assessment depicts the highest proportion of 35-year mortgages since records commenced in 2005. The trend significantly accelerated post December 2021, when the Bank of England initiated interest rate hikes from a low of 0.1%.
Nevertheless, recent activities suggest a possible plateau in soaring mortgage rates. Last month, for the first time in nearly two years, the Bank of England held interest rates at 5.25%, following an unexpected dip in inflation in August. This decision has led to a reduction in mortgage rates, with the average new five-year fixed mortgage rate dropping below 6% for the first time since early July, as per Moneyfacts.
The market is currently experiencing a flurry of “best-buy” five-year fixed-rate deals, with rates dipping below 5%. However, these deals are often reserved for buyers capable of fronting a large deposit, or those willing to contend with substantial fees.
Brokers are optimistic that a full-scale mortgage price war is unfolding as lenders vie for customers. With more mortgage rate cuts anticipated this month, the marathon mortgage trend might gain further traction among young homebuyers, making it a significant phenomenon in the UK property investment sphere.