Mortgage terms go up, house prices set to slow down.

Increasing mortgage terms

As we enter Spring and the housing market changes gear – it’s worth considering the different landscape which buyers are now in. Mortgage repayment terms for instance, are continuing to get longer according to the latest data from the Council of Mortgage Lenders (CML). In addition, it has also been predicted that house prices may temporarily slow down.

This presents a good opportunity for buyers, as lenders providing longer payment terms, increases the chance of a mortgage applications, based on affordability, being accepted – longer terms reduce monthly payments. If house prices also take a breath, it opens up the market even further for buyers.

Entering into a mortgage for the next 25 years is a big financial commitment so it’s vital to get sound financial advice when considering any property purchase to understand the impact on interest and total costs. Paying off the debt is always the end game, changing mortgage products when a term ends is also a fantastic opportunity to look at whether the length of mortgage can be shortened.

The data revealed a number of lending trends, such as longer repayment terms, with nearly 60% of first-time buyers opting for a loan longer than 25 years. In addition, those who are moving house and re-mortgaging are also taking advantage of longer terms to make their repayments more affordable.

Chart 1: Repayment terms longer than 25 years, % take-up by borrower type

Source: CML, regulated mortgage survey.

Live long and prosper

This represents almost double the figure of those taking longer-term mortgages only a decade ago. Following affordability changes, CML accredited longer terms to a delayed response to regulatory changes back in 2014, which were built to insure against financial stability risks, and prevent household owners from taking on a debt which was unmanageable if base rates rose.

Other reasons included pension freedoms, living longer and buyers stretching their income to get on to the property ladder – house prices continue to outpace earnings growth.

The regulatory changes also included a cap on the amount of loans a lender could provide on high income multiples, challenging them to find new ways to lend and ensure affordability.

CML commented that, “…lengthening payment terms simply reflect the affordability ‘facts of life’ for many mortgage borrowers. If the impact is now showing through as upwards pressure on income multiples, then the FPC’s 15% limit risks becoming a progressively harder cap over time, and we should expect to see a build-up of lending just below the 4.5 times threshold.”

House price set to slow down

First-time buyers might find news of a short-term slow in house prices a relief: The latest Royal Institute of Chartered Surveyors (RICS) said they expect house prices to slow in the short-term as buy-to-let property buyers are hit with a new 3% stamp duty.

“Over the past three months, we have witnessed a surge in buy-to-let activity,” said Simon Rubinsohn, RICS chief economist.

“Investors have rushed to purchase homes before the stamp duty surcharge comes into effect. It is inevitable that over the coming months, April’s stamp duty changes will take a little of the heat out of the investor market.”

Henry Knight, Springtide Capital agreed: “We too have seen a surge in the market and I agree that this is likely to cause a short-term slow down to increasing house prices, although house prices are still set to increase long-term. We’ve also seen an increase in mortgage terms, where lenders are comfortable that the loan lies within an ever-increasing working lifetime. This provides a good opportunity for young buyers who have a long working life ahead of them, however, we need to remain consumer focused, and remain conscious that debt, should be paid off sooner rather than later.”