In recent times, we have noticed that there has been a significant shift in the market in terms of the length of time that people are taking a mortgage for. It used to be the case that a 25 or perhaps 30 year mortgage term was a standard number of years for someone to borrow and repay money over. A manageable amount per month on a modest amount of money. However, as interest rates have increase, the amount being borrowed by people has increased, the average age of a first time buyer has increased, and people are being forced to work longer into retirement, there are more and more people taking 40 year terms on their mortgages.
Is Taking Longer 40 Year Terms On Mortgages a Good Idea?
Due to a combination of mortgage affordability being tighter, mortgage interest rates increasing significantly, people needing to borrow larger mortgages due to rising property prices, and the average age of a first time buyer rising to nearly 35, more people are considering 40 year terms on mortgages. This is mainly to bring monthly payments down to more manageable levels and to allow people to borrow more.
Taking a longer term mortgage can be a great way of getting an affordable loan much easier and getting on the property ladder sooner if you are struggling to borrow enough in the first place. However, there are always negatives with the positives and if you are considering taking a longer loan term, you should always discuss this with a professional mortgage advisor first. Taking a longer term mortgage means that a) You will ultimately pay much more interest on your loan in the long run than if you took a shorter term loan. And b) It will of course take you longer to incur equity and own more of the property in the long run, if this is your ultimate goal.
Mortgage Advisor Jade Pinkerton’s Opinion
Senior mortgage and protection advisor at Oportfolio mortgages Jade Pinkerton had this to say about recent rate increases and the uptake in 40 year terms amongst new and existing mortgage borrowers:
Passing stricter lender affordability as well as keeping monthly payments as low as possible appear to be a couple of the reasons for this surge in longer-term lending. According to latest research, the average age of a FTB in the UK is around 33.4 years old and up to 33.8 in London! In light of the above, I wanted to highlight how lenders are able to help.
- Lending up to age 75 available with no pension contribution proof required (with some lenders)
- Maximum 40 year term (with some lenders)
- Up to 90% LTV on residential
- Enhanced LTI multiples available for newly qualified professionals or the higher earners – this varies from lender to lender
- Overpayments can be made up to 10% of the outstanding mortgage balance without incurring ERC’s
It’s not just FTB’s who are opting to extend their term, with existing homeowners coming to the end of their current product also fixing for longer on average.
Speak To a Mortgage Advisor If You Are Considering 40 Year Terms On Your Mortgages
Sometimes taking a longer mortgage can be very beneficial for a borrower, and other times it can be a bad mistake that could leave you in a worse place than you hoped to be. It is so important that you get the right advice and guidance when securing a new mortgage, and you should never go it alone. Speak to a member of our team today to get a better idea of the pros and cons of taking a longer mortgage and find out what route is best suited for you. We are here to help.