By The title of this piece might sound like the world’s worst episode of Star Wars but UK Finance data shows 19pc of all loans taken out by first-time buyers in March were for terms of 35 years or longer.
This represents a record share of first-time buyers taking out this length of mortgage and is the highest proportion since 2005, when records began.
Whilst monthly repayments on longer term products are likely to be lower, buyers who take on mortgages of 35 years or longer may commit to thousands more in interest payments over the lifetime of the deal. For a buyer taking out a typical £200,000 loan, a 0.8pc increase in mortgage rates would cost an extra £1,600 per year in interest.
Over five years, this equates to an additional £8,000.
Taking out a mortgage for a longer period can be deemed a lower-risk option for borrowers to increase their borrowing potential but it may prevent borrowers from saving or investing in other areas; for example, their pensions or in tax-efficient products such as ISAs.
This is a particular concern at a time when more people are dreaming of early retirement yet millions do not have a full understanding about some of their retirement savings and more than 20% do not know the values of their pensions.
With low interest rates making it more difficult for Gen Z and millennials to get on the property ladder, it is no surprise that there has been an increase in these demographics using technology to invest and manage their finances for the future, with 19% of young investors engaging with tech as a vehicle to save for a house.
Although house prices are still at the higher end, first-time buyers are desperate to get on the property ladder and are now exploring different ways to save and grow their wealth to allow them to move on with life instead of delaying life moves.
There is no denying the financial impact the last few years has had on first-time buyers, but perhaps this increased financial pressure has also played a hand in pushing some into engaging with technology as a way to take control of their own future and finances.
While we are starting to see technology and innovation play a role in helping current and future first-time buyers prepare for homeownership and maximise savings, there remains an education gap.
What steps can be taken to help first-time buyers maximise their understanding of the buying process and affordability before they commit to the milestone?
Education: Before making any decisions about buying a home, it’s important for first-time buyers to understand the financial commitment that comes with a mortgage.
They should be aware of the long-term costs of a mortgage, what a conveyancer does, why insurance is important and why a survey might be necessary.
The following can help:
- Online calculators: There are many online mortgage calculators available that can help first-time buyers understand the long-term costs of a mortgage, including interest rates and monthly payments. These calculators can be a useful guide to help first-time buyers determine how much they can afford to borrow and what their monthly payments will be.
- Educational websites: There are many websites, such as Stipendium, that provide comprehensive information on the home buying process, and some that include step-by-step guides, articles, and videos. These resources can help first-time buyers understand the various steps involved in buying a home, including financing, selecting a conveyancer, and negotiating with sellers. Mobile apps: There are many mobile apps available that can help first-time buyers with the home buying process, including apps that can help buyers search for homes, and track their expenses. These apps can be especially useful for busy buyers who are looking for tools to help them budgeting and save towards a deposit.
- Social media: Social media platforms such as Facebook and Instagram can be useful for first-time buyers to connect with estate agents, mortgage brokers, and other professionals in the industry. These platforms can also be used to share information and tips about the home buying process.
Explore alternative financing options:
There are various options available that may help reduce the long-term cost of a mortgage such as interest-only and crowdfunding tools.
This may provide lower payments, but buyers should be aware of the potential risks.
Government schemes:
There are several government schemes currently running to help first-time buyers get on the property ladder, such as shared ownership, the Mortgage Guarantee Scheme, and First Homes.
The overall aim of these schemes is to make it easier for the nation’s first-time buyers to get on the property ladder with a helping hand from the government.
Encourage saving for retirement:
It’s important for first-time buyers to start saving for retirement as early as possible.
This will allow them to build up a nest egg that can help them cover their mortgage payments and other expenses in retirement.
Seek professional advice:
Working with a financial planner or mortgage advisor can help first-time buyers develop a long-term financial plan that considers their retirement goals and their mortgage obligations.
These professionals can help buyers make informed decisions about their finances and help them avoid costly mistakes.
The realm of tech and innovation is rapidly advancing in the property sector; however, it is important that we do not lose sight of the fact there is no algorithm for emotion and that a house purchase is one of the largest transactions that a first-time buyer will ever experience.
For me, it is important that technology plays a symbiotic role with education to achieve a digital yet holistic experience that will ultimately maximise confidence, knowledge and help invoke a forward-thinking approach in a first-time buyer.
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