Longer-term mortgage loans surge in popularity with the under-30s

Recent media reports show there has been a significant uptick in mortgage terms to continue beyond state pension age – particularly in new home loans for those aged 30 and under. This surge was revealed following a Freedom of Information request made by former pensions minister Sir Steve Webb.

The increase in mortgage rate terms means many young borrowers see this as their only viable option to getting on the housing ladder, despite the fact that their loan repayment period could roll well into retirement age. This could also result in these borrowers paying more interest overall.

It’s suggested that over time these borrowers may adjust their repayment plan to shorter terms – but this assumption is often based on the hope that salaries will increase with age allowing them to do so – which is by no means guaranteed.

The mortgage data for the fourth quarter of 2023 showed 42% of new mortgages had their end during state pension age, compared to just 31% in 2021. This clearly flags the difficulties for potential young homeowners as they seek to find ways to own their own property.

Responsible lending

This serves as a timely reminder for mortgage lenders and administrators, that the FCA expects them to ‘stand behind the outcomes their customers are experiencing’ as part of the Consumer Duty. With the consumer understanding and price and value outcomes particularly in mind, firms need to ensure their customer communications enable full comprehension of the product or service being purchased – both at the point of sale and throughout the mortgage’s lifespan. Add to this the increased interest rate environment, firms also need to actively consider whether their propositions are priced to offer fair value.

The FCA reminded firms in its Portfolio Letter to retail mortgage lenders in February 2022 about the need for responsible lending policies to take a prudent and proportionate approach in assessing customer’s income beyond retirement.

Is your product governance strategy mitigating the risk of foreseeable harm? Are you able to evidence in your first annual Consumer Duty assessment that you are lending responsibly for longer term good outcomes for customers?

At TCC, we offer expert support to mortgage intermediaries and lenders with independent challenge and validation of your Consumer Duty implementation and good customer outcomes. With the first annual Consumer Duty assessment required by 31st July 2024, our team of experts are on-hand to help you ‘dry-run’ your annual assessment plan.

Find out how we can help your firm deliver positive, compliant outcomes for mortgage customers.