Why middle-aged first time buyers are taking on bigger mortgages

12 November 2020

By Vicki Harris, Chief Commercial Officer, Kensington Mortgages

Checking your bank balance. It’s something we all hate doing, but perhaps particularly the day after buying your first house!

After years of saving up, taking the plunge and purchasing a home is a significant milestone, but it can leave the numbers on your statement lower than you’d like. At a time when you might be worrying about financial security, as many people are amid the current economic uncertainty, you might be put off making big financial decisions.  

But interestingly, during lockdown, a certain sub-set of older first-time buyers began to push in greater numbers than usual for the biggest mortgage they could get. Our data shows that 40 to 44-year olds in certain parts of the country, notably the South East outside London, have not been holding back.

It’s a trend that’s worth reflecting on: Between March and June, as Britain’s shops and restaurants closed down and economists started to warn of job losses, bankruptcies and a recession that could hammer house prices, some buyers decided to take out a bigger mortgage.

It’s important to remember that this was the period just before the Chancellor cut stamp duty, which sparked the jump in house prices and renewed confidence in the market that we have seen over the summer. From the housing market’s perspective, this was the dark before the dawn!

Overall, housing transactions fell sharply in this period. But those who did go ahead with a mortgage application asked for bigger loans.

The Kensington Affordability Tracker has been monitoring the behaviour of Britain’s mortgage applicants for two years now. The index measures the gap between the maximum amount that a mortgage applicant could have borrowed, based on their earnings and expenditure, and the size of loan they actually applied for.

In other words, it’s a measure of the average mortgage borrower’s risk appetite.

In the second quarter of 2020 the average British borrower applied for a loan that was 29% less than the maximum available sum. In the first three months of the year, that figure stood at 35%. The drop was the biggest recorded since the index began – and we weren’t surprised by this.

But the average 40-something first-time buyer took a loan that was just 7% short of the absolute maximum available. In the first quarter of the year, the loans were 27% short.  The change in behaviour is significant – but why was it happening?

By cross-examining other data points, we spotted some interesting trends.

When we first started looking at our own data, we realised that we made fewer loans to people buying flats than would ordinarily be the case. That was especially true of this 40-44 age bracket, which usually includes a good number of buyers looking for flats.

As we looked across the industry, we realised this was broadly true for everyone.

With remote working set to become the new norm, our appetite for city living is falling.   More people – particularly those with families – are looking to move out of central London in particular, to enjoy the greenery and space of the suburbs.

What our data seems to show is that while making that move, people are willing to push themselves to get the biggest, best or most expensive house that they can afford.

Spending patterns are changing. If those 40-somethings are spending less on train tickets, coffees, lunchtime sandwiches and after-work drinks, it may feel less-risky to push the boat out with the mortgage.

And if we are all going to be spending more time at home, people want to make sure their daily environment is better than ever– and has the space to accommodate homeworking.

We also believe that our middle-aged first-time buyers have more job security than younger mortgage holders.

The next set of data will tell us more about how first-time buyers have fared as house prices have shot up again, and mortgage providers cut high loan-to-value products.

In the meantime, it does feel as though those first-time buyers who took the decision to get on the property ladder between March and June may well have snuck through a window of opportunity.

If you have any thoughts you’d like to share then please feel free to email me at vicki.blog@kensingtonmortgages.co.uk

Vicki Harris has 20 years of experience working in challenger financial services brands, working across asset management, banking and specialist lending. She is Chief Commercial Officer of Kensington Mortgages, the UK’s leading non-bank specialist mortgage lender.

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