New figures show large slump – and here's why
Staff at the Bank of England have raised concerns about what they have called “the growing trend of taking out mortgages later in life,” warning that it could lead to a retirement debt crisis. The trend they identified was that of younger people taking out mortgages that would still need to be paid after the borrower reached the national retirement age.
Figures, however, seems to show that uptake of longer-term mortgages in the UK has plummeted, even as new lenders enter the market, promoting US and European-style loans as a potential answer to the nation’s housing affordability issues.
Read more: Second major bank says interest rates heading to 2.75% - and quickly
According to data from UK Finance, only 390 new mortgages with terms longer than five years were agreed in August, a sharp drop from 1,690 in March 2023. These longer-term products made up just 0.48% of all new mortgage loans that month.
Despite the availability of more options—ranging from the seven, ten, and 15-year fixed-rate products offered by major high-street banks to 25-40 year fixes from newer lenders—British homeowners remain reluctant to commit to longer terms. Instead, the majority of borrowers are opting for two or five-year fixed rates, which accounted for 89% of new mortgages in August. This contrasts with housing markets in countries such as Germany, France, Denmark, and the US, where long-term fixes are much more popular.
Several lenders have launched these extended fixed-rate products in recent years, often backed by life insurers or private investors rather than traditional bank deposits. The strategy hinges on the belief that offering competitive rates would create demand for longer-term loans.
Barclay’s owned specialist lender Kensington introduced mortgages with terms between 11 and 40 years in November, while two newer players, European style covered bank Perenna and April, have also entered the market. April offers five to 15-year fixed rates, and Perenna provides terms ranging from 10 to 40 years.
However, high rates on long-term fixes are proving a barrier. Rates on long term products are significantly higher – and with headlines talking about mortgage wars and falling rates, new borrowers are naturally reticent to lock in a higher rate. As of now, Perenna offers 40-year mortgages starting at 5.5%, and Kensington’s products begin at 5.84%. In comparison, five-year fixed rates start from just 3.79%, and a ten-year fixed is 4.69% from Santander. It also doesn’t help that borrowers are often hesitant to trust newer lenders, further limiting the appeal of these longer-term options.
Many politicians and economists continue to advocate for long-term fixed-rate mortgages, arguing that they could help address the affordability crisis in housing. In England, where the average home now costs 8.26 times the average salary, these products could allow buyers to secure larger loans with less exposure to fluctuating interest rates, potentially offering greater stability in an unpredictable market.
The big problem at the moment is, of course, with rates heading down, who DOES want to fix for that long?
