Are young home buyers being unfairly affected by the mortgage market?

While buying a first home has always been a challenge, today’s first time buyers face a triple problem: a housing market that’s seen huge price increases, alongside stagnating wages and rising interest rates.

And if they do manage to jump onto the housing ladder, according to a report by Uswitch.com, young home buyers aged 18–24 are paying more in mortgage repayments than any other age bracket. The report investigates how young people are feeling the impact of the current mortgage market.

Let’s take a look.

Who is paying the most in monthly repayments?

According to Uswitch’s mortgage statistics report, mortgage repayments of £1,390.90 a month are being paid by 18-24-year-olds, the highest amount paid of all age brackets. This figure is 59% more than 25–34-year olds’ average monthly repayment of £874.35, which is the second most expensive, and the difference is bigger the greater the age gap.

The lowest monthly payments are paid by those aged 55 and over – they average £763.79 – which is nearly half of the average monthly payments for 18–24-year-olds; this seems to suggest that first time buyers are accepting higher mortgage repayments due to a shortage of capital. The report also finds that 0.99% of 18–24-year-olds have monthly repayments exceeding £3,000. On average, 0.48% of 45–54-year-olds repay over £3,000 a month for their mortgage – the second largest portion from all ages analysed, but still less than half the percentage of 18–24-year-olds.

Clearly, first time buyers are having to make sacrifices to get themselves onto the property ladder and buy their first home, and many must think that if they hesitate, the purchase price of a residential property they want to buy will go up.

First time buyers should research the latest deals and mortgage rates

Commenting in the report, 23-year-old Luke from Southend-on-Sea, who works in finance, said:

We did a lot of research before applying for a mortgage to make sure we were getting the best deal with the lowest rates. Beyond that, we’re saving where we can, cutting back on some luxuries – moving back in with our parents before moving into our new home was especially useful to save up for the deposit and mortgage payments.

The original length of mortgage term by age

Age18-2425-3435-4445-5455+
Average original length of mortgage term26.0929.4427.224.5222.73
Figures from Uswitch.com.

The longest mortgage terms, an average of almost 30 years, are taken on by 25–34-year-olds. On average, 57.25% of homeowners in this age group have a mortgage term of 30 years plus. The report found that the average length of a 25–34-year-old’s mortgage is 30% longer than the initial mortgage term for those aged 55+ (22.73 years). Uswitch stated that while the 18-24 age group has a shorter average term of 26.09 years, this is likely to increase following the introduction of 50-year mortgages.

Many first time buyers aim for a new build home.

Monitor mortgage rates

31-year-old Kester from Nottingham, who works in IT & Telecoms, said in the report:

We’re having to watch the market closely, as when our current term ends in a few months, we’ll likely be paying double. The best thing for us to do is keep up to date with the market and look for a new mortgage deal as early as possible, as right now, it’s more difficult than ever to find a deal that’s a good fit.

 The mortgage types currently chosen by young home buyers

18-2425-3435-4445-5455+
Fixed-rate mortgage41.58%80.73%79.84%70.84%56.56%
Standard variable rate mortgage25.74%11.96%13.49%20.24%35.66%
Tracker mortgage17.82%4.15%3.72%7.47%6.56%
Discounted mortgage14.85%3.16%2.95%1.45%1.23%
Figures from Uswitch.com.

The 18–24-year-old sector takes up far less fixed-rate mortgage deals than other age brackets: 41.58% chose a fixed-rate deal while 80% of the 25-34 age group did. According to Uswitch, the recent interest rate rise will be less for this age bracket.

Fixed mortgage rates avoid the impact of interest rate rises

The report quoted 28-year-old Marissa from Newcastle, who works in marketing, and said:

In terms of staying ahead of rising payments, having a fixed-rate mortgage deal has made paying our mortgages much simpler. We haven’t been affected by rising interest rates, which has meant our payments have been consistently lower than other homeowners.

Money management tips for first time buyers

While getting on the housing ladder is a challenge, taking sensible steps will help you to stop paying rent and make home ownership a reality.

Claire Flynn, mortgage expert at Uswitch.com gave first-time buyers some tips on managing their money. She said:

Firstly, give your finances a health check: a good credit history is essential to getting a good mortgage deal, so be sure to  check your credit report for the full picture of all your outstanding debts. It’s vital to make sure that all the information is correct, as any mistakes may hurt your chances of securing a loan.

Secondly, try to reduce spending; not only does lowering your spending give you more money to help save for a deposit, but fewer outgoing payments will increase your chances of being accepted for a loan. You could reduce your spending without making any lifestyle changes by:

1. Cutting the cost of your debts; look at your credit card statements to find out your outstanding balance, interest rate and how much you’re paying each month. If you are being charged a high interest rate, move debts to a 0% balance transfer credit card to lower interest payments, although make sure you’re aware of all the terms and conditions before you do.

2. Switching or (re-contracting) your broadband, digital TV and mobile provider: if your contract has come to an end, make sure you shop around for deals. A comparison site like Uswitch can suggest a wide range of offers from across the market. It’s likely you’ll save money if you combine your broadband, digital TV and mobile into a bundle from a single supplier.

3. Paying less for insurance: from car to pet insurances, never let any policy automatically roll over when it ends. Take the time to consider your options, research the market and compare quotes to make sure you get a chance to find cheaper insurance deals and cut your premiums.

4. Checking benefits and taxes: review your income tax code and council tax band to endure you’re being taxed correctly. If you have been paying more tax than you should, you might be able to claim your tax back.

Finally, apply with caution: don’t be tempted to make multiple mortgage applications just to see what kind of offers you can get. Every time you apply for a mortgage, it will be noted on your credit report, and can negatively impact your credit score. Instead, consider using an online mortgage comparison calculator, or talk to a mortgage broker to get a better understanding of what deals are the right fit for you.

Get closer to buying your first home

As well as taking this advice, consider government schemes to help first time buyers, speak to a range of mortgage lenders, and keep an eye on the latest deals so you will know what your top purchase price can be. Also, think about other home ownership schemes such as shared ownership, mortgage guarantee arrangements, and help to buy equity schemes. Other schemes are available for key workers if you fulfill eligibility criteria. Remember to factor Stamp Duty charges into your calculations. Hopefully, you’ll then be closer to buying a home and on the first rung of the property ladder.

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