What You Need to Know About Taking a 35- or 40-Year Mortgage

Posted 8 July 2019 by Nick Parkhouse

Thinking of taking out a 35- or 40-year mortgage? Here’s your complete guide to the pros and cons of a marathon mortgage...

For years, most borrowers took their mortgage out over the traditional term of 25 years. However, new research has found that the number of people choosing 35- or even 40-year mortgages has reached its highest level since 2011.

So why are so many people choosing to commit to a mortgage for 35 or 40 years? What are the advantages? And what should you bear in mind? Find answers to these questions and more in our guide to so-called ‘marathon’ mortgages.

‘Marathon’ mortgages rising in popularity

The latest figures show a significant rise in the number of borrowers taking out longer-term mortgages.

A freedom of information request by The Sunday Times has revealed that half a million people took out mortgages last year that extend to more than 25 years, with nearly 10,600 homeowners taking out a mortgage over a 40-year term.

Overall, 42% of homeowners who took out a mortgage in 2018 borrowed money for longer than 25 years, the traditional length of a home loan.

This research backs up figures from the Financial Conduct Authority who say that the number of borrowers taking out mortgages lasting 35 years or more has reached its highest level since the 2011 recession.

28,310 mortgages running for 35 years or more were approved in 2017, the most recent year for which the data is available — a rise of more than a quarter on the previous year.

The FCA said 2.5% of mortgage approvals in 2017 were for marathon deals, compared with 1.6% in 2011.

So why are so many borrowers taking out ‘marathon’ mortgages?

Why are borrowers taking mortgages over 35 and 40 years?

In simple terms, a longer mortgage term mean that you can benefit from spreading the cost of your mortgage over a longer period of time. This reduces the payments each month.

Read: First-time buyer? 7 tips to finding the right house for you

According to the Office for National Statistics’ Housing Affordability in England and Wales, in 2018 the average house price was 7.8 higher than the annual earnings of full-time workers in England and Wales.

When combined with tougher mortgage affordability checks that came into force in 2014, it’s clear that getting a mortgage is more difficult than it has been in the past.

So, some borrowers need a longer term to ensure their monthly repayments are manageable.

Here’s an example. Assuming a £150,000 repayment mortgage at an interest rate of 3%, your monthly repayments would be:

  • £711 over 25 years
  • £632 over 30 years
  • £577 over 35 years
  • £537 over 40 years

Extending your term to reduce your monthly repayments could be the difference between being approved for the mortgage you need and not.

Another reason that borrowers are choosing longer-term mortgages is that the choice of mortgage products available to borrowers wanting a 35- or 40-year mortgage has increased significantly in recent years.

Research from financial analysts Moneyfacts has revealed that there are now 2,744 mortgage products which can be taken over a maximum term of 40 years, equivalent to 55% of all the mortgage deals in the UK.

While committing to a ‘marathon’ mortgage might secure you the borrowing you need, there are some important factors that you need to consider – not least that you could pay much more overall.

The downsides of taking a ‘marathon’ mortgage

The main downside to extending your mortgage term to 35 or 40 years is that you could end paying significantly more interest overall.

Here’s an example.

If you took a £200,000 repayment mortgage at a rate of 2.50% over 25 years, your monthly repayment would be £897.23 and you’d pay total interest of £69,169 over the term.

However, if you took the same mortgage over a 40-year term, you’d reduce your monthly repayments to £659.56 but increase the total interest payable to £116,588.

In this example you’d pay an additional £47,419 in interest by choosing a 40-year rather than a 25-year term.

Lee Boyce from This Is Money says: “Many become so blindsided by the need to get on the property ladder, they may not be taking their time to look at the boring stuff, the stuff that can lump thousands of pounds of interest onto a property loan.”

There are other reasons to think twice about taking a long-term mortgage.

For example, taking your home loan over 35 or 40 years means it will take you longer to build up equity in your home.

The effect of this is that when you come to remortgage to a new deal, you may not secure the best rates. The cheapest deals are generally only available to people borrowing at lower loan-to-values, so if you haven’t built up much equity in your home then you might find it harder to get a competitive interest rate.

A longer mortgage term also puts you at more risk of falling into negative equity. If house prices fall and you haven’t built up much equity in your home (as you haven’t paid off much of your mortgage) then you could find yourself in negative equity.

Read: Everything you need to know about negative equity

Finally, the longer the mortgage, the older you will be by the time you finally pay it off.

Considering that the average age of a first-time buyer in the UK is 32 years old, you could be approaching retirement (or already retired) by the time you repay your mortgage. Do you really want to be worrying about your home loan as you approach retirement?

Review your mortgage term on a regular basis

If you choose to take out a 35- or 40-year mortgage you should review your arrangements on a regular basis. There are lots of ways that you might be able to shorten the term in future when your finances improve:

  • Make overpayments – if you are on a fixed or discounted rate then most lenders will let you pay 10% of your mortgage balance each year without incurring an Early Repayment Charge
  • Remortgage – if you decide to switch to a better deal further down the line, considering shortening the term of your mortgage at the same time
  • Change the term – speak to the lender about changing the term of your mortgage when you are able to pay more.

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