First-time buyers are stretching their finances to buy a home they can stay in for many years, according to Barclays’ latest data.
Whereas in the past they may have bought a flat or a terraced house to get a foot on the property ladder, more than a third of first-time buyers are now buying semi-detached houses.
Barclays said that, in August, 33.5 per cent of first-time buyers bought a semi-detached property, an increase of 1.7 per cent year-on-year.
Meanwhile, the number buying flats was 19 per cent; a 2.7 per cent decline.
Three-bed properties were most popular, making up 46 per cent of all purchases in August.
It reveals a growing trend among first-time buyers towards buying a ‘forever home’, in a bid to avoid a costly move after a few years if they want to start a family or just need more space.
To finance these larger purchases, buyers are taking longer mortgages of 30 years or more. Twenty-five year terms were once the norm, but that is fast disappearing.
Stretching to a semi-detached: Barclays data reveals a preference toward larger homes among first-time buyers, as they can stay in the property for longer without needing to move
Stretching the repayments out over more years makes individual monthly payments cheaper, though borrowers pay more overall.
Barclays’ mortgage data shows that 41.3 per cent of first-time buyers bought with a mortgage of 30-plus years in duration in August.
Some 37 per cent of mortgage holders said 30 to 40-year mortgage terms were more desirable than shorter durations, because they could mean lower monthly repayments.
Meanwhile, two in five homeowners (41 per cent) believed their mortgage payments took up too much of their monthly income.
On average, homeowners reported that their mortgage accounted for 27.7 per cent of their take-home pay, up from 26.6 per cent in July.
Why do they want bigger homes?
First-time buyers appear to be put off by the expense and hassle of moving.
This includes paying stamp duty, which costs £5,000 on a £300,000 home for a second-stepper, as well as legal fees, surveys, removals and any renovation costs.
It is also possible that, with the average age of a first-time buyer now 33 according to Halifax data, they want a home that can accommodate a family as their first purchase.
Millennial homeowners, those aged 28 to 43, are the most likely age group to prioritise extra space, Barclays said.
More than a fifth (22 per cent) said they bought a property with more bedrooms than they currently need in order to avoid upsizing later, compared to 13 per cent across all age groups.
Almost three in 10 of all recent buyers said they intended to stay in their new home for at least 10 years.
Jatin Patel, head of mortgages, savings and insurance at Barclays, said: ‘Our data shows that first-time buyers are not considering property merely to get a ‘foot on the ladder’ but for the long term.
‘It’s clear that buyers are still cost-conscious as 30-plus year mortgage terms become more popular – this option helps consumers reduce their payments by stretching their borrowing over a longer period of time.’
Recently, banks have launched mortgages with ever-smaller deposit requirements which can help first-time buyers get on the ladder more quickly – though they come at a higher cost.
For example, last week Newcastle Building Society launched a 2 per cent deposit mortgage, which is only open to those not using the Bank of Mum and Dad.
In addition, Rachel Reeves recently enabled banks and building societies to loosen their mortgage lending rules in order to help more people on lower incomes buy a home.
Since 2014, lenders have been subject to a rule which means loans of more than 4.5 times the borrower’s annual income can only make up 15 per cent of their mortgage book.
For example, someone earning £40,000 a year would usually be restricted to borrowing no more than £180,000.
But that is now changing, with lenders able to offer more loans at higher income multiples – some even as high as six times annual salary.
Lenders such as Nationwide and Lloyds have already widened their offering to such borrowers.
Other have made it easier to get larger mortgagers by lowering their ‘stress rates’, the hypothetical rates they use to test borrowers’ ability to continue to pay their mortgage if the interest costs became more expensive.
