Thousands of borrowers took out mortgages with terms of 35 years or more during the government’s stamp duty holiday in a bid to keep up with rising prices.
There has been an increase in borrowing across the board, and figures show that despite historically low interest rates, the number of people taking out ‘marathon mortgages’ has also increased.
As the first phase of the stamp duty holiday came to an end in England, 35,046 mortgages with terms of 35 years or more were sold in June 2021. In September, when the second phase ended, 28,112 others were sold.
The figures, obtained by wealth management firm Quilter under the Financial Conduct Authority’s Freedom of Information Act, showed a huge jump in the June figures, although this is from a period just after the easing of foreclosure restrictions on the housing market.
September figures showed a 75% year-on-year increase in long-term home loans.
Quilter says this suggests borrowers were taking the opportunity during the stamp duty holiday to buy bigger, more expensive homes, stretching out repayments over a longer period to make them affordable.
The £3.8billion stamp duty suspension was announced by Chancellor Rishi Sunak in July 2020 to avoid a housing market crash during the first Covid lockdown.
Until the end of June 2021, the first £500,000 spent on a property in England and Northern Ireland was tax free, meaning savings of up to £15,000.
Scotland and Wales had different stamp duty holidays which ended in June 2021.
In England, tax relief has been reduced, the threshold at which tax on property purchases begins to drop to £250,000 until the end of September 2021. The so-called ‘zero rate band’ has returned to its pre-pandemic level of £125,000 on October 1.
Charlotte Nixon of Quilter says people who take longer mortgages will pay more interest in order to spread out the loan.
She says: “Those who bought for the average house price in June and September 2021 saved £3,283 and £2,499 on stamp duty respectively. But to take advantage of this saving, many had to opt for a longer term to ensure it was affordable.
“However, if they had waited until they could afford a standard term mortgage, they might well have saved a lot more money in the long run than the stamp duty savings alone.”
The policy has been described as a “reckless move” by Generation Rent, a lobby group for private tenants. Deputy manager Dan Wilson Craw said: ‘Not only has it put billions of pounds back into the already wealthy thanks to rising house prices, but thousands of households have put themselves at huge risk by taking out mortgages that they could still pay off in retirement, in order to compete with other buyers.
Quilter’s figures show there have been increases of more than 300% in mortgages taken out across the board, from terms of 20-25 years to terms of 35-40 years.
Nixon says the added cost of taking out a longer-term mortgage may have been an “afterthought” for those rushing to meet stamp duty deadlines.