Bitesize: How 20-somethings are getting onto the housing ladder in London

Sachin Galaiya.

There are two ways people can make their resources go further when buying a home.

One is to increase the loan-to-value (LTV) ratio and hence increase the amount available to buy a house for a given deposit.

The other is to lengthen the term over which the mortgage is repaid, which increases the size of loan associated with a given level of monthly repayments.

For example, consider someone with £2,000 a month available to spend on a mortgage. At an interest rate of 4.5%, they are able to afford a loan of £360k on a traditional 25-year repayment mortgage.

However, by paying the same monthly amount over 35 years rather than 25 years, the person could borrow £63k more.


The chart shows how in the financial crisis of 2008/9, high LTV (>90%) lending fell sharply as lenders tightened credit criteria, with only a small rise in the proportion of longer mortgages.  But then over the next four years, there were virtually no new high LTV mortgages, but a marked rise in longer term mortgages.  Since 2013, both LTV and term have expanded.

Although this trend towards longer-term mortgages might seem extreme, in countries like Sweden and Japan, ultra-long mortgage terms of up to 100 years are the norm.

Sachin Galaiya works in the Bank’s Retail Credit Risk Team.

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Bank Underground is a blog for Bank of England staff to share views that challenge – or support – prevailing policy orthodoxies. The views expressed here are those of the authors, and are not necessarily those of the Bank of England, or its policy committees.


2 thoughts on “Bitesize: How 20-somethings are getting onto the housing ladder in London

  1. There are a couple of issues here though. Firstly, the person in the example would end up paying a massive £240k extra to borrow the additional £63k. Secondly, £63k is barely a couple of years price increases in London so how is this sustainable in the longer term?

  2. I’m glad you have the Bank Underground blog and I think the concept of being open to different views is an excellent initiative:

    Apologies for the bluntness, but all increasing the tenor of mortgages will do is to increase prices further. Existing home owners and property investors will profits, and the young will be impoverished further. Wealth inequality will increase even more than it has already (simple statement of fact – additional money and value appreciation has gone to existing asset holders).

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