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UK mortgages: Millions to face loan repayments beyond retirement age

UK mortgages property
Average UK home owners would be well into their 70s before their mortgage loans are repaid, according to a study by UK Finance. Photo: In Pictures Ltd./Corbis via Getty (Richard Baker via Getty Images)

The number of mortgage applications fell sharply in the final quarter last year as the cost of living is pushing those getting on the housing ladder to get longer mortgages to be able to afford the bills.

The total number of house loans made in 2022 fell by around 15.6% year on year to 813,006, with falls reported for first-time buyers, homemovers and buy-to-let landlords, according to UK Finance.

However, by December the flow of mortgage applications had “dropped away sharply” compared to 2021.

At the same time, the cost of living crisis meant that a greater number of households are borrowing over a longer mortgage term, with the average term for a first-time buyer loans now at around 31 years.

This means the average mover will be well into their 70s before their loan is paid off.

“Despite the fall in applications towards the end of 2022 the mortgage market remains steady. Looking ahead, we expect a softer market compared with the past two years as cost pressures weigh on households, although refinancing levels will be robust due to the 1.8 million fixed rate deals scheduled to end this year,” Eric Leenders, managing director of Personal Finance at UK Finance, said.

Read more: UK average house prices fall by £8,500 from August peak

Overall, the mortgage market experienced “relatively subdued growth” in 2022, with gross lending rising by around 1.9% year on year to around £313bn.

For the week that ended March 3, the average contract rate on a 30-year fixed mortgage increased to 6.79%, from 6.71% the prior week, the Mortgage Bankers Association (MBA) said on Wednesday.

UK Finance also warned that as the cost of living squeeze persists through 2023, more households may need to draw upon their savings to cover higher monthly bills.

The report that it “expected to start to see signs of increased payment stress in the latter part of the year”, although it takes a few months of missed payments to accrue to arrears of 2.5% or more.

It added that arrears rose by around 1,000 cases, bringing the total to 81,000 which was in line with figures seen at the start of the year.

Read more: UK houses being sold at a discount as demand falls for tenth month in a row

“Contributing to this positive movement, almost 80% of mortgage customers are currently on fixed rates, meaning the vast majority were shielded from the immediate impact of rate rises through the year. The remaining 20% that are on variable rates are, for the most part, much older mortgages with commensurately smaller balances, so that the impact of rate rises translated to a lower rise in absolute terms in their mortgage payments,” UK Finance said.

“Additionally, a continuing benign picture on unemployment has not added pressure from job losses on borrowers’ ability to pay, at the aggregate level,” it added.

Watch: How much money do I need to buy a house?

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