Longer-term mortgages and high first-time buyer age set to eat into pensions
The increasing age of the first-time buyer, along with trend of longer-term mortgages, could mean that borrowers will be paying mortgages into their retirement and could negatively impact the amount they could save.
According to data from Trussle, the average age of the first-time buyer has risen to 32, up from 29 a decade ago.
The broker said this was “unsurprising” due to house price inflation, adding that this could be further aggravated by the cost of living crisis.
Trussle added that first-time buyers have increasingly been opting for longer-term mortgages, with Office for National Statistics figures showing 63,158 35-year mortgages were taken out by first-time buyers. This is a 75 per cent year-on-year increase.
The broker explained that because of this, first-time buyers will repay more over the course of the mortgage term, although their monthly repayments may be more affordable in the short-term.
The retirement age has also continued to grow, with state pension age set to reach 67 by 2028.
Trussle said these factors mean borrowers could be paying off their mortgages for longer, which could impact how much they are able to save for retirement. It added that it could be likely that borrowers could even be paying their mortgage during retirement.
It recommended making overpayments, saying this could cut the term and reduce the overall cost. The firm said overpaying by just £50 a month could reduce mortgage terms by two years and save £5,000.
Amanda Aumonier, head of mortgage operations at Trussle, said: “This is an alarming trend that has been brewing for years. When purchasing a home, buyers naturally think about the here and now, which typically means looking for ways to keep their payments as low as possible.
“But, while taking out a longer term mortgage can be an effective way to keep short term costs low, you will end up paying more back in the long term. Not only this, but you could also still be paying off your mortgage during a period of life when your income begins to drop.”
She added that housing affordability had been “spiralling for years”, which meant first-time buyers could struggle to get on the property ladder.
“We have also taken a short-term approach into calculating the impact of soaring house prices. This new data shows that the ramifications will reverberate for decades to come and will lead to consequences not yet accounted for. If this trend is to be addressed, we will need to see urgent action on affordability today,” she said.