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The number of residential mortgages available for a maximum term of up to 40 years has increased by 13.44% over the last five years, according to research from Moneyfacts.co.uk.
In June there were 1,217 mortgages available at a maximum term of 40 years, while today this has increased to 2,744. For borrowers, longer mortgage terms mean they can benefit from being able to spread the cost of the loan over a longer period of time, which reduces the payments each month. However, borrowers should be aware that taking a mortgage over a longer term increases the total amount of interest they will have to pay back overall.
Products at maximum mortgage term (residential mortgages only)
|Max term||40 years||35 years||30 years||25 years|
|Jun-14||1,217 (41.54%)||1,125 (38.40%)||392 (13.38%)||196 (6.69%)|
|Mar-19||2,604 (50.89%)||2,221 (43.40%)||140 (2.74%)||152 (2.97%)|
|Today||2,744 (54.98%)||1,921 (38.49%)||165 (3.31%)||161 (3.23%)|
According to the Office for National Statistics’ Housing Affordability in England and Wales, in 2018 the average house price was 7.8 higher than the annual earnings of full-time workers in England and Wales. This gap, along with the requirements of affordability tests, means that some borrowers now need a longer term to have a manageable monthly mortgage payment. While an easier monthly payment is useful, borrowers should know that the additional interest that accumulates over time could be considerable.
For example, a £200,000 repayment mortgage at a rate of 2.50% over 25 years equates to a monthly repayment of £897.23 and total interest payable would be £69,169 over the term. However, the same mortgage taken over a 40-year term would reduce the monthly repayments to £659.56 but increase the total interest to be paid to £116,588, resulting in an additional £47,419 in interest.
While a longer term may be useful to the borrower today, in the future they may decide they can afford a higher monthly payment. Choosing a mortgage that allows overpayments is a good way for borrowers to reduce their loan more quickly.
Many mortgages allow overpayments and these can be easily be found using our mortgage charts by looking at the flexible features within the mortgage details.
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