Longer term mortgages on the rise

Longer term mortgages on the rise
More than 28,000 mortgages running for 35 years or more were approved in 2017, according to data from the Financial Conduct Authority, with a growing number of lenders now offering terms of up to 40 years.

The data shows that the number of longer term mortgages taken out by borrowers the year before last was the highest since 2011.

Separate research by financial website Moneyfacts found that the number of mortgages available with a maximum 40-year term has more than doubled over the last five years.

Barclays last month extended the maximum term on its Family Springboard mortgage from 25 years to 35 years. The Springboard mortgage enables homebuyers to take out a mortgage without putting down a deposit, provided their parents agree to keep 10% of the property purchase price in a savings account for five years.

Pros and cons of longer mortgage terms

The biggest benefit of a longer mortgage term is that it enables homeowners to spread the cost of their borrowing over a much longer period, reducing the cost of their monthly payments.

Many borrowers need longer mortgage terms to make monthly payments affordable. Housing affordability data from the Office for National Statistics shows that full-time employees can typically expect to spend around 7.8 times their work-based annual earnings on purchasing a home in England and Wales. This figure increases to a massive 44.5 times in some areas of the capital, where prices are least affordable.

However, although repayments may be lower with a longer-term mortgage, the amount of interest that must be paid back overall can be significantly higher.

For example, someone taking out a £150,000 repayment mortgage at a rate of 2% over 25 years would pay back £636 a month, assuming the mortgage is taken out on a repayment basis. The total interest payable over the term would be £40,734. If, however, they chose a 40-year term instead, monthly payments would fall to £454 a month, but the total interest paid would increase to £68,034.

You can see how altering your mortgage term could affect your monthly payments and the amount of interest you’ll pay back in total with our mortgage calculator.

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