40 year Mortgage terms are rising.

New research from data experts, Moneyfacts shows that 57% of the residential mortgage products currently available have a standard maximum term of up to 40 years. Up from just under 36% in March 2014.

The data suggests Mortgages with a maximum term of 40 years are now becoming the norm.

The average age of a first-time buyer is 32, meaning a generation of homeowners will not become mortgage-free until they are in their 70s.

40 year Mortgages will cost borrowers more.

With a longer term mortgage, borrowers can reduce their monthly payments and are therefore more likely to meet banks’ strict affordability rules.

But this also means they will end up paying back much more.

Moneyfacts gives the example of a £250,000 repayment home loan with an interest rate of 2.5%.

Over 25 years, that equates to a monthly repayment of £1,121, and the total interest payable would be £86,463.

The same mortgage taken over 40 years would cut the monthly repayments to £824, but increase the total interest to £145,733. That’s an additional £59,270.

25 year Mortgage terms becoming a thing of the past.

The traditional 25-year mortgage is increasingly becoming a thing of the past, particularly when it comes to first-timers.

Yorkshire building society became the latest big provider to increase its maximum term to 40 years.

Their research suggests the growing demand for more affordable monthly payments might be driven by first-time buyers.  They are buying larger and/or more expensive homes than they did 10 years ago. 

The building society said that an increasing number of borrowers are setting their sights on larger, detached homes.  While more traditional starter homes of the past are being overlooked.

As a result, the proportion of 30 to 35 year mortgage terms taken out by first-time buyers has grown from 16 per cent in 2007 to 36 per cent today.  The proportion of mortgages lasting between 20 and 25 years has dropped from nearly half of all deals taken to just one in five.  

What the experts say.

Yorkshire Building Society’s Charles Mungroo said:

“Attitudes of first-time buyers are altering, with an increased demand for larger homes compared to the traditional ‘starter home’ that was once standard to get on the property ladder.”

“Along with more purchases being made later in life and families having to juggle multiple financial commitments, there is a real demand in borrowers wanting to stretch their terms to make their monthly payments more affordable along with borrowing later into life.”

Shaun Church, a director at mortgage broker Private Finance, said:

“Continued efforts need to be made to ensure homeownership remains attainable early in adulthood to avoid jeopardising this generation’s financial security later in life.”

Darren Cook at Moneyfacts says an extended mortgage term may well go beyond pension age,

“so it is imperative these borrowers consider their options and attempt to make provisions if their personal circumstances change”.

Andrew Montlake from mortgage brokers Coreco said:

“With people working and living longer we are seeing more demand from clients to take out their mortgage on as long a term as possible.” 

“Despite the fact that over the longer term they will pay more interest, first-time buyers especially like to be cautious and the longer-term allows them to keep their mortgage payments lower for longer.”

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