As homebuyers struggle to afford property due to escalating prices, the average mortgage term has reached a record high of 30 years
Reaching for the stars – so attractive and yet seemingly beyond one’s grasp. To some, that is what the property market now looks like. With the prices of houses increasing as well as the cost of living, some homebuyers are struggling to purchase property, burdening themselves with mortgages that will stretch over a long period and take years to pay off. The average mortgage term has reached a record high of 30 years, according to UK Finance. “The record 30 years registered in June represents a significant jump from the 25.5 years reported in 2005 when the trade body first started compiling the data.
The pandemic, which caused a flurry in the housing market with almost everyone trying to buy a home, also resulted in attractive low mortgage rates. Now that the rates have risen, it is becoming more difficult to invest in affordable property. It has been a busy time for agents, like the estate agents in Sittingbourne, trying to get the best deals for their clients.
However, the current mortgage rates even though they have risen are still below those recorded in some historical charts. They went to a high of 8.87% in 1998 and a low of 3.59% in late 2021. According to an authorised source, “BBA Mortgage Rate in the United Kingdom increased to 4.54 per cent in July of 2022, the highest since April 2017.” It is still only a little higher than the low of 2021 and much less than the high of 1998.
Bank interest rates:
Due to inflation and the economic situation being aggravated by the side effects of the Russia-Ukraine conflict, among others, the rate of interest has had to be raised. The Bank interest rate has been microscopically increasing and it is now 1.75% in August 2022. Those people who have variable rate mortgages will have to pay more each month as the interest rate rises. First-time buyers and remortgagers will also face higher mortgage costs with new fixed rates, even though they may be long-term.
Along with mortgages costing more, prospective homebuyers are having to deal with property prices which have kept rising. However, there is always a silver lining to the cloud. For the first time in over a year, the average UK house price in July 2022 dropped minimally by 0.1%, according to Halifax. Although it cannot be accurately predicted, this could be the start of a slow down on increasing property prices. Apparently, there were more sellers in June this year, making more property available, while there may be a decrease in demand for homes, due to the rising cost of living and other expenses.
Due to the uncertainty of the future, many homeowners are now looking at long-term fixed mortgages, to ensure stability and ward off additional expenses should mortgage rates increase. Also, for any fixed deal that ends before the mortgage term, as in short-term mortgages, it will have to be remortgaged for another fixed rate and term, which will involve additional costs. Hence, long-term mortgages though more expensive overall involve reduced monthly payments over a longer period of time and a fixed rate, making them more popular.
The choice of mortgage deal is one of the major decisions a person has to make. It is best to obtain multiple quotes. Lenders will differ in their outlooks on your financial situation. Comparing offers will allow you to gauge the best term, rates and fees. It is also advisable to check on annual overpayment limits on a fixed-rate mortgage. If it is affordable, then additional payments can be made, reducing the end amount and time.
Although the lower age limit for buying a house is 18 years, there is no upper age limit. However, to obtain a mortgage for an elder, personal and financial criteria will be taken into consideration, often resulting in higher monthly payments. There is a consideration for “extra-long term mortgages on family homes that could be passed on from parents to their children” but this proposal has not yet come into effect.
At this time of unpredictability, soaring costs and possible economic shocks, it is only natural for a person to want some form of stability, especially with regard to a roof over his/her head and the means to pay for it. The long-term fixed rate mortgage offers this. So, there just may be a possibility of reaching for that star and grabbing it!