Mortgages 

FCA reveals state of mortgage market decade after crash

FCA reveals state of mortgage market decade after crash

More than a fifth (22 per cent) of new first-time buyers will be over 65 when their mortgage matures as rising property prices put pressure on affordability, just one of the radical changes to the lending market a decade since the financial crisis.

The most common loan term for first-time buyers is now 35 years, meaning that while monthly payments are lower, they face paying thousands more in interest.

The Financial Conduct Authority (FCA) has today (7 December) published the striking statistics as part of a data bulletin focusing on trends in regulated mortgage lending over the last ten years, which covers the financial crisis and its aftermath.

It reveals mortgages with a term longer than 25 years accounted for 17 per cent of all loans in 2007, but by 2016 this had increased to 39 per cent, of which around half were over 30 years in length.

The average first time buyer loan has increased in value by 20 per cent, from £135,000 in 2007 to £161,600 in 2016, with the biggest increase (39 per cent) seen in Greater London.

A first-time buyer taking out a 35-year loan faces paying £38,723 more in interest compared to one with a 25-year loan – 46 per cent more.

According to the regulator, the number of first-time buyers in 2016 was 7 per cent lower than in 2007 and 69 per cent higher than in the aftermath of the credit crunch in 2008.

Unsurprisingly, the age of first-time buyers is increasing, with just 22 per cent aged between 18 and 35 in 2016 – down from 30 per cent in 2007.

Overall loan volumes have almost halved since before the financial crisis, dropping from 2.1m in 2007 to 1.08m in 2016, with first-time buyer mortgages – supported by the government’s Help to Buy scheme – showing the smallest decline.

Fixed rate mortgages have increased in popularity over the period and in 2016 accounted for 89 per cent of new loans, compared to 73 per cent in 2007.

Meanwhile, there has been a sharp drop in interest-only lending, which declined from 32 per cent to just 4 per cent of loans following the introduction of tighter regulations in 2014.

Despite significant increases in recent years, high loan-to-value (LTV) lending remains much lower than in 2007.

Loans with an LTV of over 90 per cent accounted for 9 per cent of the total amount in 2016, compared to 14 per cent before the financial crisis.

David Hollingworth, associate director, communications at London and Country, commented: “If you go back to 2007, you would have had first-time buyers using interest-only mortgages. I would argue a longer term on a repayment mortgage is a safer position to be in. Many will hope to reduce that term [35 years] at a later date.

“Probably people are now thinking 65 is no longer the target retirement date. In reality, it will be more like 70, and rising beyond that.

“In very simple terms, first-time buyers need to start saving as soon as they can, but to extrapolate from the shape of the market we have seen over the last 20 years, it does underline the fact that the supply issue needs to be addressed.”

simon.allin@ft.com

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