50+ years to repay your mortgage

Moneyfacts analyst Julia Harris has highlighted changes in UK mortgage terms. While the standard term was once 25 years, affordability has become difficult for many first time buyers which may mean that a 25 year term is no longer enough. Ms Harris comments: ‘As house prices rises show no signs of abating, today’s buyers face two major obstacles. First, being able to borrow the amount needed to purchase the property and second, being able to afford the monthly repayments.’

She adds that lenders are aware of the difficulties and have taken steps to address them, using methods such as higher income multiples, interest only loans, group mortgages and government schemes to help first time buyers get onto the property ladder. Another strategy lenders have used is to extend the mortgage term to make repayments more affordable. This can be for anything up to 53 years. Some 38 per cent of people searching for a mortgage are now looking for a term of over 25 years.

Ms Harris says: ‘A moneyfacts.co.uk survey reveals that eight out of ten lenders now offer maximum mortgage terms in excess of 25 years. A quarter of lenders are now offering a 40-year mortgage term and a handful offering the maximum possible term of 52 years. It’s a frightening thought to think you could potentially be forking out for that hefty monthly mortgage payment from the moment you turn 18 until the day you retire at 70!’

She warns that while extending the mortgage term is a useful way of affording a mortgage in the initial period, in the long run interest costs will spiral. She gives the example of a 25 year repayment mortgage at 5.25 per cent, where adding five years to the term will increase repayments by £25,000 and extending the term to 40 years will add interest of £77,500 to the bill.