The Saga generation has been told to take a leaf out of the book of the millennials when it comes to repaying home loans.
While the over 50s keep their fingers crossed over mortgages that may leave them owing thousands of pounds at the end of the term, the more cautious younger generation of under 35s are playing it safe, according to research.
Their prudence may well be out of necessity rather than choice.
Younger “millennial” borrowers are much less likely to be on interest-only deals than older homeowners – 8 per cent of under 35s are repaying just the interest on their loan, compared to 32 per cent of over 55s, according to L&C, the mortgage broker – a consequence of the legacy of easy access to interest-only before the 2007/08 financial crisis. Lenders have since pulled up the drawbridge on this cheaper but riskier option, leaving younger borrowers with no choice but to repay the capital.
Millennial homeowners are also more savvy, because they are more likely to have switched for a cheaper deal than any other age group, according to L&C, the mortgage broker.
The research also found that they are more likely to value security, with 69 per cent opting for fixed rates.
Younger borrowers, because they have less equity, also face higher monthly repayments, at £908 on average versus £430 a month for the over 55s – a consequence of being on higher interest rate deals because of their higher risk profiles.
Strained budgets, lower salaries and higher potential outgoings may also be behind their decision to choose fixed rates – they literally can’t afford a rate rise.
So it is no surprise, perhaps, that the under 35s are more motivated to find cheaper deals than the older generations, for whom monthly repayments are more trifling. Who can be bothered to switch, with all those fees and hassle, if they are managing just fine with repayments, thank you very much? Only 18 per cent of those over 55 have ever bothered to remortgage.
David Hollingworth, from L&C Mortgages, said: “Staying on top of your mortgage payments is key to avoiding financial difficulty, and it’s imperative to make sure you don’t borrow more than you can afford. Our research shows that young people are, on the whole, taking the savvy steps needed to ensure they haven’t bitten off more than they can chew in terms of covering their mortgage payments. Using a fixed rate mortgage is a good way of managing what is most likely your biggest outgoing – but it is always worth getting advice on what’s the best deal for you, especially as a first time buyer.”
Mr Hollingworth added: “Although the younger generation certainly face challenges when it comes to taking out a mortgage, the older generation hasn’t necessarily had it easy. The FCA estimates that 600,000 interest-only borrowers will see their mortgages mature before 2020*, and that many risk being left without adequate provision to pay off the remaining amount on their loan.
“Our figures have found that only a small percentage of those over 55 have ever remortgaged for a better deal. Although some may be reaching the end of their mortgage others may have found lending criteria has limited their choices. Lenders have limited the maximum age at the end of the mortgage to 70 or 75. However some lenders are more flexible and it makes sense for the over 55s to follow the lead of the millennial generation, who seem to be taking a more active role in managing their mortgages.”
