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First-time buyers forced to borrow for longer and seek family help to get on ladder

Properties in Edinburgh. Photo: Richard Baker/In Pictures via Getty
Properties in Edinburgh. Photo: Richard Baker/In Pictures via Getty

A growing number of first-time buyers are taking out longer mortgages to get on the UK property ladder, leaving them paying far more in interest to lenders.

Research from lender Nationwide shows 70% of first-time buyers last year took out mortgages with a term of more than 25 years, with 35-year mortgages the most common. A decade ago, only 45% of those buying their first homes took out such longer loans.

Extending the length of a mortgage makes buying a home more affordable, with borrowers benefiting from lower monthly repayments and lenders more confident bills will be paid.

But paying back a mortgage for another 10 years means forking out significantly higher sums in interest overall. Nationwide’s analysis suggests a typical mortgage will be 40% more expensive when the term is increased from 25 to 35 years.

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The research also suggests it would take the average London worker almost 16 years to raise a 20% deposit for a typical first-time buyer property. It assumes they could set aside 15% of their take-home pay each month.

The figures underline the unaffordability of property in the capital for those looking to buy, though many lenders currently allow deposits of 15%, and several offer 10% deposit mortgages.

Average house prices have been rising relative to first-time buyers'earnings since the mid-1990s, with the exception of the global financial crisis. They are now more than 5 times higher, when they were less than 2.5 times higher in the mid-1990s. Chart: Nationwide / ONS data
Average house prices have been broadly rising relative to first-time buyers'earnings since the mid-1990s, with the exception of the global financial crisis. They are now more than 5 times higher, when they were less than 2.5 times higher in the mid-1990s. Chart: Nationwide / ONS data

READ MORE: UK housing boom slows as lockdown ‘chill’ hits market

With average UK property prices significantly higher than a decade ago, research also shows first-time buyers are increasingly reliant on help from friends and family.

About 40% had help raising a deposit, such as gifts or loans from family and friends or inherited wealth. The figure had stood at around 25% in the mid-1990s.

WATCH: What do stamp duty cuts mean for buyers and house prices?

But with interest rates at historic lows in recent years, Nationwide senior economist Andrew Harvey said: “The good news is that for those that are able to raise a deposit, the cost of the typical monthly mortgage payment relative to take-home pay has been trending down in recent years.”

The study also looks at how affordable average mortgage bills are for different earners. “Affordability is most challenging for those working in areas classified as ‘elementary occupations’, which include jobs such as construction and manufacturing labourers, cleaners and couriers, and those in care, leisure and other personal service jobs.

“In these groups, typical mortgage payments would represent over 40% of average take-home pay.”

How long it would take to save 15% of each region's salary a month to save a 20% deposit on the average local property. Chart: Yahoo Finance UK
How long it would take to save 15% of each region's salary a month to save a 20% deposit on the average local property. Chart: Yahoo Finance UK