Half of all first-time buyers (FTBs) in the UK and over a quarter of home movers who took out a mortgage in the third quarter of this year opted for a term of more than 30 years, UK Finance reveals.

A review of household finance, in collaboration with Accenture, found that this compares to around a quarter of FTBs and fewer than one in 10 home movers doing so a decade ago. 

The proportion of mortgages borrowed over longer terms has increased almost continuously since the global financial crisis and has accelerated sharply since 2021.

UK Finance suggests this reflects the effects of rising house prices and new mortgage rates on affordability.

The data also shows that the average household income of a FTB mortgage application in the third quarter of this year stood at just under £60,000, 17% higher than the same quarter last year.

During this time, wage growth was well below this rate, which UK Finance says indicates a shift towards higher income households entering the market as lower income households struggle to get onto the housing ladder.

House purchase activity remained on trend with pre-Covid levels in Q3, but the review highlights that demand is expected to weaken into 2023 due to stretched affordability.

Meanwhile, borrowing through personal loans dropped off in Q3 after strong growth in the first half of the year. 

Household savings remained static in the quarter as the rising cost of living put pressure on people’s ability to save while overdraft use continued to increase slightly.

Growth in outstanding credit card debt eased in Q3 following a strong previous quarter, which the review says is likely to reflect a drop-off in discretionary spending.

The long-term decline in interest-bearing balances stalled in the quarter, which suggests a small increase in some consumers being unable to pay off their credit card balances in full at month end.

Despite pressures on household finances, the review found that there has been no impact on headline mortgage arrears numbers in Q3. 

Overall arrears continued to fall in Q3, however, the burdens on household finances from falling incomes and higher mortgages could mean an uptick in arrears next quarter and into next year. 

The review found that possession numbers remain substantially lower than previous normal levels.

UK Finance managing director of personal finance Eric Leenders says: “The levels of home buying and selling were in line with pre-pandemic trends in Q3, but we expect activity to cool next year. Cost of living pressures and changing employment patterns are likely to have an impact on demand and affordability going forward.”

“At the same time, 1.8m fixed rate deals are due to end in 2023, so refinancing levels will be robust. We would encourage customers to speak to a mortgage advisor and shop around for the best deal for their circumstances.”

Accenture UK Banking practice managing director Krishnapriya Banerjee adds: “Waning consumer confidence shows that people are bracing for tougher times ahead and seeking to stretch affordability.”

“Banks will need to address the twin challenge of supporting households through this uncertain economic period whilst ensuring they have sufficient operational resilience to handle the weight of growing customer demands.”

“Digital tools that leverage artificial intelligence and behavioural economics can help anticipate customers’ needs and assist those facing financial hardship.”