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Married to your mortgage?

Mon 20 Sep 2021

Paul Bennett, Director

For most of us, buying a property is the most expensive purchase we’ll ever make and only made possible thanks to a mortgage. The repayment term of 25 years has been the borrowing standard for decades, with advice to pay off your mortgage debt as soon as possible passed down from wise elders and financial stalwarts.

 

In 2021, however, there is an undercurrent in home loans – one that is seeing lenders shift towards longer repayment terms. In fact, the number of mortgage products where payments can be spread across 35 years has risen by 70% in just 24 months. Research by the Financial Conduct Authority (FCA) and Quilter found there were 25,112 thirty-five year deals available in March 2021, compared to just 14,765 in March 2019.

 

If you thought 35 years was a long time to repay a home loan, how about adding an extra five? In March 2021, the mortgage market’s first ever fixed-rate home loan that offered borrowers a 40 year repayment choice was launched by Habito.

 

Can anything top 40 years? Well, yes. The 50-year mortgage - that’s 600 months of slowly chipping away at a debt - does actually exist but it’s a rare offering that’s more popular in the US than the UK. Take out a loan with this repayment term and you’ll acquire a millstone mortgage that may possibly be with you until you die.

 

So, is it worth being wedded to a long-term mortgage just to get a foot on the property ladder or even trade up to that dream house? Quite possibly if it’s your only means of being able to become a homeowner but you'll need to be fully armed with the facts before you commit.

 

Behr & Butchoff has weighed up the pros and cons of longer repayments terms to help you decide if one of these products is for you. As ever, we urge buyers to discuss their plans with an independent financial adviser first.

 

Advantages of a longer repayment term

  • Spreading repayments out over a longer term can result in lower monthly payments, which are more affordable when property prices are high.

  • A longer repayment term gives people the chance to live more affordably in London when monthly rents are more expensive than mortgage repayments.

  • Extending the repayment term of a mortgage can help if there is an unexpected change in financial circumstances.

 

Disadvantages of a longer repayment term

  • Borrowers will be repaying more interest than those on shorter terms, adding thousands to the total amount that has to be repaid.

  • The borrower may have to continue making repayments into their retirement or extend their working age to keep paying off the debt.

  • Extending the mortgage term any further in the future may be impossible.

 

6 additional considerations when considering a 35+ year mortgage:

1.     Arrangement fee: is this much higher than with a more traditional mortgage?

2.     Interest rates: are fixed-rates available? If so, how much and for how long?

3.     Early repayment charges: is there a charge for settling the mortgage early?

4.     Repayment holidays: are these permitted under the terms of the mortgage?

5.     Overpayments: can you make overpayments to reduce the term of the loan?

6.     Deposit: is there a minimum deposit the lender requires, such as 10% or 20%?

 

 

If you are exploring the purchase of a home in London, talk to the Behr & Butchoff team about availability, values and recommended mortgage brokers.