FINANCE
Prepare for a marathon
EXPERT COMMENT
For some borrowers, particularly rst time buyers, securing a mortgage with a 35+ year term could be the only way to afford a property due to the lower monthly repayments. However, it is important that the risks of such long mortgage terms are properly understood. One of the largest knock-on effects is that the longer the mortgage term, the older you will be when making the nal repayment. This means that people are likely to be borrowing beyond their retirement age. Paying a mortgage in retirement can have a major impact on standard of living with many people becoming unable to comfortably afford the repayments. Additionally, you are likely to pay considerably more in interest over the course of your mortgage term. Certain mortgages allow you to make overpayments which will reduce the amount of interest paid over the term length. Seeing a mortgage adviser is very important if you are looking to commit to a 35+ year term, as they can ensure a mortgage product has the exibility to overpay without being penalised. Having this ability will allow you to pay more off your mortgage if you are in a position to do so and will ultimately reduce your term.
Mortgage terms are getting longer and longer in a bid to make buying a home more affordable, but short-term gains have long-term implications, says Kay Hill
month over 25 years, but £1,117 a month spread over 40 years; saving £3,228 a year. So far, so good. The sting, however, is in the tail – the amount paid over the term for borrowing that £252,000 (assuming interest rates stay the same) would be £415,930 over 25 years but £536,040 for the same amount borrowed over 40 years, with the interest of £284,040 exceeding the original price of the home. There’s a handy calculator at landc.co.uk/ calculators/how-much-will-my-mortgage- cost to help you work out your own individual figures. Statistics from the Financial Conduct Authority show that the number of 40-year mortgage sales (the longest term currently available in the UK) has increased by 29% from 2021/22 to 2022/23. Charles Incledon, Director at Bowmore Asset Management,
The standard mortgage term used to be 25 years, but today’s first time buyers are increasingly being offered terms of 30, 35 and even 40 years from high street lenders. When UK Finance first started collecting statistics in 2005, just 2% of first time buyers took a loan of 35 years or more. In 2023 that figure stood at 19%. With the average first time buyer getting the keys to their new home at around the age of 34, that means huge numbers of today’s buyers face paying their mortgage well past retirement age. The reason that terms are getting longer is simple – the monthly payments are significantly reduced, increasing affordability. For example, for a first time buyer purchasing a £280,000 home with a 10% deposit, the monthly payments on a market-leading 4.4% mortgage for the remaining £252,000 would cost £1,386 a
Charlotte Nixon, Mortgage Expert, Quilter
86 First Time Buyer April/May 2024
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