According to recent surveys, some homebuyers are considering smaller properties and opting for longer-term mortgages to deal with affordability challenges. Credit reference agency Experian revealed that a quarter of mortgage holders under the age of 30, who began their loan at the beginning of this year, selected a 35-year term, which represents a 15% increase from last year’s 10%. Meanwhile, Nationwide Building Society reported that average property values were down by 5.3% compared to last year. The mortgage rates have been higher than what buyers might have planned for, resulting in a decline in property prices.
The chief economist of Nationwide, Robert Gardner, observed that there is a growing interest in smaller, less expensive properties, with the volumes of transactions for flats holding up better than other types of properties. This could be attributed to the fact that affordability for flats has been relatively better than other properties, thanks to the less intense price increase experienced during the pandemic. According to Nationwide, the average UK house price in September was £257,808, which was £14,500 lower than the same time last year.
Nationwide bases its survey data on its own mortgage lending, which isn’t inclusive of those who buy with cash or buy-to-let deals. It also noted that someone earning an average income and purchasing the typical first-time buyer home with a 20% deposit would spend 38% of their take-home pay on their monthly mortgage payment. This is higher than the long-run average of 29%. Meanwhile, Experian reported that some younger buyers are opting for longer-term mortgages to reduce their monthly repayments, as high-interest rates increase the pressure on borrowers.
Some ways to cut mortgage costs include overpaying early on to make the most of the low fixed-rate deal, switching to an interest-only mortgage to pay only the interest on the borrowed amount, and downsizing for those whose children have left home. However, downsizing won’t necessarily be a reasonable option for families with growing children or small flat owners
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