For a long time, 25 years was the traditional mortgage term. Now, however, the majority of first-time buyers are taking mortgages with terms of longer than 25 years.
In 2020, around 70% of first-time purchasers took out a mortgage with a term of more than 25 years, according to Nationwide Building Society’s house price index affordability report. 10 years ago, this figure stood at around 45%. Rising house prices and longer working lives have been mentioned as reasons for the move to longer terms. The Nationwide report also shows that prices rose by 7.3% in 2020 and that the average UK property now sells for £230,920.
The house price to earnings ratio stands at 5.2 across the UK, and at 9.2 in London. The record high for this ratio (UK wide) was 5.4, set in 2007, so we are close to this level once again now, increasing the pressure on first-time buyers seeking to raise a deposit.
A 20% deposit is now equivalent to 104% of average pre-tax income of a full-time employee, whereas ten years ago, it stood at just 87%.
However, for those able to provide a 20% deposit, mortgage repayments are now just 28% of take-home pay, which is below the average figure recorded over the last 35 years.
Many people currently seeking to purchase a home will be expecting to benefit from the stamp duty holiday, but online property platform Rightmove has suggested that a “processing logjam” could mean that 100,000 applicants could miss the March 31 2021 deadline and end up with an unexpected stamp duty bill.
Rightmove says 613,000 sales are currently in progress, but that buyers are now waiting for an average of 126 days between the acceptance of their offer and final completion. This could mean that one in six current applicants will see their applications complete after the end of the stamp duty holiday, unless the Government decides to extend the grace period.
The stamp duty ‘holiday’ means that no stamp duty is currently paid on the first £500,000 of a property’s value. From April 1, we are set to revert to the standard system, whereby only the first £125,000 is free from duty (or the first £300,000 if the purchaser is a first-time buyer).