Money

Mortgages: 40-year terms are becoming the norm – but watch out


Mortgages with a maximum term of 40 years are now becoming the norm, according to new data this week. However, with the average age of a first-time buyer standing at 32, that raises the prospect of a generation of homeowners not achieving mortgage-free status until they are in their 70s.

Latest research from the data experts at Moneyfacts.co.uk 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.

It provides more evidence that the traditional 25-year mortgage is increasingly becoming a thing of the past, particularly when it comes to first-timers.

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

By stretching the term, borrowers can reduce their monthly payments and are therefore more likely to meet banks’ strict affordability rules.

But there’s a big sting in the tail. 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 whack up the total interest to £145,733. That’s an additional £59,270.

Shaun Church, a director at mortgage broker Private Finance, says: “Continued efforts need to be made to ensure home ownership 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”.



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