Mortgage offers: How changing millennial trends may raise costs for baby boomer homeowners

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Mortgage tastes have changed recently as millenials began to enter the home-buying market, with the younger generation prioritising longer-term deals. Additionally, new analysis has shown coronavirus has forced buying habits to alter dramatically.

Recently, Nationwide revealed 70 percent of first-time buyers chose a mortgage with an initial term of over 25 years in 2020, compared to just 45 percent in 2010.

Miles Robinson, the Head of Mortgages at the online mortgage broker Trussle, commented on what millenials are prioritising: “In the last decade, millennials opting for mortgages longer than the standard 25-years has risen by a staggering 50 percent.

“Ensuring monthly repayments are affordable has increasingly become buyers’ primary concern rather than the overall value of their property.

“We’re living in a time when more than half the UK population now wait until the age of 34 before owning their first home, and may consider it a stepping stone rather than a home for life.

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“As well as an increase in the take up of longer term mortgages, there’s no doubt that the impact of the coronavirus pandemic has marked a shift in buying habits.

“Rising house prices and a lack of higher loan-to-value mortgage products means city living is becoming increasingly unaffordable for many first-time buyers.

“As a result, over half (71 percent) now plan to buy in a town, suburb or rural location.

“The wide regional disparity in the level of deposits is dominating this significant shift, with a buyer in South East London expected to save an average deposit of £79,000, compared to just £14,000 for a deposit on a property in more rural Harrogate.

“It’s no secret that getting a mortgage is often one of the biggest financial and emotional commitments a person will make in their lives.

“And for many first-time buyers, spreading mortgage payments over a longer period of time might seem like the most affordable option.

“However, it’s important to bear in mind that increasing the repayment term means you will incur long term interest rates, increasing the overall amount payable.”

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Millenials are roughly aged between the mid-20s and late 30s and according to a House of Commons briefing paper from 2017 (the latest available) they make up around 13.9 percent of the total UK population.

The report noted millenials have had less time to accumulate wealth and as such, have relatively low levels of home ownership but, the employment rate for this group is 82 percent.

Millennials also make up a growing proportion of the workforce and many are keen to get on the housing ladder.

As a result of these changing factors, Miles went on to detail what impact may be felt by baby boomers in the coming months and years: “The number of people leaving London hit a four-year high in 2020, and we can see a pattern forming with buyer demand across the country driving up property prices for all.

“For example, Manchester has seen the largest growth in average house prices in England with an increase of 5.7 percent, closely followed by Leeds (5.6 percent) and Nottingham (5.4 percent).

“For generations such as the baby boomers who typically reside in more rural towns and suburbs, this could have a noticeable impact.

“As prices surge, older people hoping to downsize might find that they get less for their money when looking to relocate within the same area. Additionally, as more buyers flock to the suburbs to get more for their deposit amount, local amenities could change based on the needs of a younger demographic and growing families.

“Only time will tell whether an exodus of buyers from cities such as London, results in a further shift of buying behaviours from older generations. As an industry, it’s important we continue to monitor buying patterns and priorities to ensure we support buyers and movers of all ages.”

Lenders may be forced to change the kinds of mortgage offers they provide as millennials look to buy.

Millennials typically have less money saved than their older cohorts and as such, they look for mortgages with low deposits.

On this, lenders have been urged to provide more 90 percent deals in a bid to entice first time buyers, as David McGrail, a Director at First Mortgage, explained: “A 90 percent mortgage is considered by many to be the mortgage of choice for first time buyers, and with the stamp duty holiday ending, many first-time buyers will be looking for that incentive to move.

“With a high loan to value it means the buyers who might otherwise struggle to save a 20 percent deposit can get on the housing ladder with just a 10 percent deposit, making a house move much more viable in the current economic climate.”

David concluded with another examination of how the introduction of 90 percent mortgages could impact older generations: “The reintroduction of 90 percent mortgages would help keep the market moving as it allows more first time buyers to be able to buy their own homes. This in turn helps keep the properties further up the chain moving as the buyers are coming in at the bottom end and keep the whole cycle active. Without the new buyers coming in at the bottom, the buyers looking to up size would find it more difficult to sell their homes, or they would have to accept lower offers to make the sale.”

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