According to data released by UK Finance, first-time buyers seem to be using ultra-long mortgage terms to ensure they enter the property ladder.

The number of new homes purchased by first-time buyers with a mortgage term higher than 35 years has more than doubled.

Why is this an issue? Why is this phenomenon happening?

It’s all to do with the reduction of monthly repayments to mortgage providers.

According to Finance UK, these types of purchases accounted for 18% of all new homes purchased in February 2023, in contrast to the 8% a year earlier.

According to Private Finance, if a first-time buyer borrowed £450,000 for a mortgage with a 25-year term, a 4.5% interest rate, and a £999 fee, they would pay back £751,000 in total. They would have to pay back £972,000, or £221,000 more than they would have if they had taken up a 40-year mortgage.

The knock-on effect of the increasing cost of living and energy crisis plaguing the UK has only escalated property prices, which has further inflamed the housing crisis.

Cornerstone Tax highlights the continued desire of first-time buyers to step onto the property ladder, as 32% of Brits now say that buying property is their primary investment goal.

The average asking price for a first-time buyer property has reached a record high of £224,963 due to Rightmove data. It reveals that houses purchased by first-time buyers experienced a 2% gain over the year.

A reason why housing prices increase is due to the high amount of demand surrounding people wanting to buy a property and the lack of supply the UK has to provide.

The only way people can afford houses is through a mortgage, so it makes sense for first-time buyers to opt for the plan that results in cheaper outgoing payments, as the cost-of-living crisis still looms over the United Kingdom.

A report from Nationwide found that average house prices increased by 0.5% during April. David Hannah, the Group Chairman of Cornerstone Tax, believes that the increase in house prices in April could be a sign that the property market’s re-adjustment period might be ending as mortgage rates begin to fall.

David Hannah, Group Chairman of Cornerstone Tax, explains: “The UK is going through a re-adjustment period regarding property prices and is slowly adapting to the new rates of mortgages. However, we are already beginning to see a fall in fixed-rate mortgages, which has resulted in a wave of buyers returning to the property market.

“It is also crucial to remember that we must look at the bigger picture when assessing the state of the property market, not just the most recent developments – look how quickly the narrative has changed compared to the start of Q1.

“The UK property market has tended to be more stable than any other global market in the world. I expect to see low to mid to single-digit growth throughout the rest of this year despite the common narrative regarding falls or even a crash. Despite the negative predictions currently, there is an underlying pressure on the market which is leading to upward pressure on prices.”