Knowledge Bank: Borrowers stretching terms as affordability becomes harder

Jake Carter

September 8, 2021

homeownership house prices

Knowledge Bank’s criteria tracker has found that a significant number of borrowers are attempting to stretch mortgage terms to 35 or even 40 years, with ‘maximum age at end of term’ the most-searched term in August.

This backs up research recently carried out by Quilter which showed a 70% rise in 35 year-plus mortgages over the past two years.

According to Knowledge Bank’s analysis, this trend for elongated mortgages may be the result of rapidly increasing house prices creating affordability issues.

Reinforcing this, the second most searched term was ‘income multiple used for affordability assessment’.

The rush for new investors entering the buy-to-let (BTL) market showed no signs of slowing down in August, as ‘first-time landlord’ was the most-searched term in this field by brokers.

‘Regulated bridging’ continued as the number one most-searched term in the bridging category.

Meanwhile, ‘heavy refurbishment’ appeared among the most searched bridging terms for the first time since April.

There was also high demand from brokers searching for a bridging loan for ‘commercial property’.

In the commercial arena, ‘semi-commercial properties’ remained the top search for the 14th consecutive month, bar one.

Knowledge Bank said this indicates that some professional landlords are shifting from straight BTL into semi-commercial, a trend which started when the government introduced more punitive tax laws for BTL in 2017.

Although the economy is showing encouraging signs of recovery, debt management and late payments were still popular searches.

In the residential market, ‘missed or late payments’ was the fourth most-searched term by brokers, and connected to this ‘debt management plan – ongoing/ current’ was the second most-searched in the second charge market.

Matthew Corker, operations director at Knowledge Bank, said: “With house prices accelerating at unprecedented levels, it’s not surprising borrowers are looking to lower monthly payments by stretching terms.

“Even first-time buyers in their early 30s are now stretching terms close to, or beyond retirement age.

“Terms for lenders vary in regards to age limits, some building societies have no max age limit, other lenders tend to limit the maximum age to 70 to 85 years old.

“The expectation from the lender is that the borrower will either overpay, or shorten the term when remortgaging, but this could present an issue for some who are still having to work into their 70s to pay off their outstanding mortgage debt.

“Regulated bridging continues to be popular, and it appears some are using these to adapt and renovate commercial properties.

“With the shift away from offices, and online shopping becoming more popular, converting offices and retail spaces may become more popular in the coming months.”

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