First-time buyers could pay nearly 50% more than existing home owners for their property because typically they are spreading their mortgage repayments for longer periods of over 35 years.
According to analysis by the Financial Conduct Authority (FCA), which has scrutinised 10 years of mortgage data, taking out a £200,000 home loan for 35 years rather than 25 years at a 3% interest rate requires £38,723 more (46%) in interest payments.
First-time buyers are older on average than they were decade ago as they have been forced to wait longer to get on the housing ladder because of rising house prices and low income growth, the FCA found.
“While increasing the mortgage term can make monthly repayments more affordable, ultimately the borrower is likely to repay a greater amount of cumulative interest over the life of the mortgage,” the regulator said.
“Lengthening the mortgage term also means that the borrower will be older by the time the loan matures.”
For loans granted in 2016, 22% of first-time buyers will be over 65 when they finally repay their mortgage.
First-time buyers are not the only ones borrowing over longer periods. The FCA said the most common mortgage term has traditionally been 25 years and that in 2007 longer borrowing periods represented 17% of all loans. By 2016 this had increased to 39% and half of these were for more than 30 years.
However, the change is more pronounced for those buying for the first time: in 2016, 62% of first-time buyers had loans longer than 25 years and 34% longer than 30 years.
The FCA found that first-time buyers have been the strongest source of growth for lenders since the 2008 crisis.
While the average age for a first-time buyer has risen to 31 from 30, those 25 and younger are less likely to be buying their first home than they were in 2007. Then, this age group accounted for 30% of first-time buyers but by 2016 the figure was 22%.
In London, just 10% of first-time buyers are younger than 25 – down from 17% a decade ago – and on average borrow £289,000 compared with £208,000 in 20o7.
North-east England and Humber have the highest proportion of first-time buyers under 25, at 29%. First-time buyers borrow £108,000 and £116,000 on average respectively in the two regions, compared with £99,000 and £104,000 in 2007.
In Northern Ireland the size of average first-time buyer mortgages has fallen by 28% to £97,000 because of the decline in property prices since the financial crisis.
The 26 to 30 age group makes up the greatest proportion of first-time buyers – 34% – but the proportion of those aged between 31 and 35 has risen from 17% in 2007 to 22% in 2016.
The FCA found that one of the most notable changes over the period was the fall in mortgages worth 90% or more of the value of a property.
In 2008 this high loan-to-value lending amounted to 14% of the market, but fell to 1% by 2011 as lenders restricted home loans in reaction to the crisis. The help-to-buy programme, introduced in 2014, helped increase this proportion again to 9%.
Interest-only mortgages – 32% of all new loans in 2007 – have also become less popular and in 2016 made up 4% of new lending.
However, 21% of outstanding mortgages are still interest-only and the FCA is reviewing how borrowers are being treated by their lender as the maturity on their mortgage approaches.