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Mortgaged all the way to retirement: the average mover’s new loan will run until they are 65

Mortgage debt
Mortgages are bigger than ever, so home buyers are stretching out the repayment terms for years longer Credit: Joe Giddens/PA

Rising house prices and ever-bigger mortgages are pushing more and more home buyers to stretch out their loans all the way up to retirement.

The average home-mover is 40 years old and takes a 25-year loan, meaning they will be in debt right up to their 65th year, a record length of loan according to industry group UK Finance.

This means that despite the years of paying down their first mortgage, those moving house are back to the traditional starting term of a quarter of a century.

As a result the usual dream of a homeowner to spend several years in their late 50s and early 60s mortgage-free but still earning peak salary is moving out of reach.

Given this is an average figure, it also indicates some owners will still be paying their mortgage into retirement, potentially postponing the date at which they can give up work, straining their pension to cover the mortgage - or forcing tough decisions on downsizing or remortgaging.

First-time buyers are also stretching out mortgage terms. On average those taking their first step onto the housing ladder are 31 years old and take out a mortgage with a term of 29.6 years.

People generally choose longer mortgage terms to keep bills down. Although longer terms translate into higher interest repayments overall, the monthly cost is much more affordable - crucial both to meet regulatory requirements, and to buying more expensive property.

The average first-time mortgage has risen to £172,158, equivalent to more than 3.5-times the borrower’s income. A decade ago this stood at £109,506 and a ratio of barely three-times income.

Yet longer terms and lower interest rates make this higher debt much more affordable.

Combined monthly capital and interest payments come to just over one-sixth of a first-time buyer’s income now, down from more than one-fifth in 2009.

More extreme options are also available.

“The typical 25-year mortgage term is largely a thing of the past, particularly when it comes to first-time buyers. High property prices mean many borrowers are opting for a longer term in order to achieve lower monthly mortgage payments and help them meet lenders’ tougher affordability criteria,” said Mark Harris at mortgage broker SPF Private Clients.

“More than half of all mortgage products can be taken out for a 40-year term, while most lenders allow at least a 35-year term."

Most products come with an overpayment facility of 10pc per annum. This allows home owners whose pay goes up to overpay their mortgages where possible and reduce the term in the long run.

Overall mortgage lending volumes are holding up reasonably well despite the Brexit uncertainty which seems to have slowed house price growth.

In June banks and building societies dished out 32,760 new loans to first-time buyers and 21,000 to movers, both representing a modest rise on the month and a dip on the year.

So far this year more than 170,000 first-time buyers have taken out mortgages - the highest number since 2007 - while movers are more subdued at just over 160,000 loans, barely changed on the year.

“Whilst the current economic and political landscape is less than certain, these figures show an increasing confidence to get on to the house ladder with first-time buyer numbers close to their pre-crash levels,” said Nitesh Patel at the Yorkshire Building Society. 

“This is partly to do with a strong jobs market, with record numbers in full-time employment and resurgence in real earnings growth. Another factor is a highly competitive mortgage market is helping to keep borrowing costs at very low levels.”