Borrowers increasingly turning to longer-term mortgages

Posted 26 August 2015 by Nick Parkhouse

Rising house prices and tougher mortgage rules have made it more difficult for many homebuyers to afford a new home loan. Now, research has found that borrowers are increasingly looking for mortgages of up to 35 or 40 years in length in order to take on a commitment they can afford to pay.

While this may result in lower initial repayments, experts are warning that borrowers could end up paying tens of thousands of pounds in additional interest by taking a longer mortgage.

One in five borrowers looking for a very long-term mortgage

According to a new survey from a leading mortgage broker the proportion of people searching for a very long-term mortgage has more than doubled in the last year.

Mortgage Advice Bureau reports that 21% of property buyers searched for a very long-term loan (defined as 30 years or more) between April and July this year, up from 8% during the same period in 2014.

The Daily Telegraph reports that “the trend is mainly a result of rapidly rising house prices and lacklustre wage growth” and that “by taking a longer-term loan borrowers can reduce their monthly repayments, which helps meet affordability requirements”.

Many lenders offer long-term mortgages. Virgin Money and NatWest will allow a 35-year term while Halifax and Nationwide which will let you stretch your home loan to 40 years. However, the actual term you will be able to get will often depend on your age.

Mortgage expert David Hollingsworth says: "The natural limitation here is the maximum lending age. This varies across lenders but most will typically require the mortgage to finish by age 65. This is slowly changing though and some lenders will accept borrowers who say they plan to work to age 70."

This means that younger buyers may be able to benefit from a longer loan but buyers in their forties or fifties may still be restricted to a 20- or 25-year term.

Experts warn that long-term mortgages can cost significantly more

While a 35- or 40-year mortgage may reduce your initial mortgage repayments to an affordable level, experts have warned that the total amount of interest you will pay over the term of the mortgage could be significantly more.

Keith Osborne, editor of new homes portal Whathouse.com, says: “Consider the average April to July 2015 purchase mortgage of £151,668 on a two-year 75% loan-to-value fixed rate of 1.87%, reverting to a standard variable rate of 4.49%. Your initial repayments would be £83 less on a 30-year mortgage than on a 25-year deal. However, the cost of repaying this loan over a 30-year term would be £23,297 higher than if you paid it back over 25 years, with 25% more interest due overall.

"The difference between borrowing over 35 years compared with 25 is even greater. Your repayments will be £141 cheaper initially but over the lifetime of the loan you will pay an additional £47,707."

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