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Nearly half of first-time buyers would consider taking out a 40-year mortgage to get onto the property ladder, according to research from Santander Mortgages.
This could prove a successful strategy, as the bank also found that choosing a 40-year mortgage over a 25-year term could help 3.25 million more first-time buyers get onto the property ladder as it would make monthly repayments more affordable. Indeed, the analysis revealed that the cost of an average monthly repayment for a 25-year mortgage falls by £263 when spread over a 40-year period, and not only that, but buyers could save £178,500 – or 77% of the average UK house price – by buying a property rather than renting over 40 years.
"The possibility of owning a property may seem like a distant dream to some aspiring buyers, many of whom have found themselves locked in a 'rent trap' and unable to get onto the property ladder," said Miguel Sard, managing director of Mortgages at Santander UK. "By offering buyers the option of a longer-term mortgage, our aim is to address some of the affordability restrictions they face and support them in buying a home with more manageable monthly repayments."
The good news for first-time buyers is that the number of 40-year mortgages available has increased significantly over the last five years. Last month Moneyfacts.co.uk reported that 50.89% of all residential mortgage products have a standard maximum mortgage term of up to 40 years, up from 35.93% five years ago.
"Historically a standard mortgage term generally amounted to a period of 25 years, but most products are now available to be extended for a period of 40 years," said Darren Cook, finance expert at Moneyfacts.co.uk. "By extending their mortgage term, borrowers may be looking to reduce their monthly repayments and therefore are more likely to meet strict affordability requirements."
It is important to remember that although 40-year mortgages reduce monthly repayments, it does mean borrowers will have to wait longer to pay off the mortgage, which could mean some borrowers are making repayments into retirement. Therefore, those considering a 40-year mortgage should think about if they will still be able to continue making repayments towards the end of the mortgage, or may want to consider overpaying when their financial situation improves to help shorten the mortgage term. Another option could be choosing a shorter term when they remortgage; hopefully, they'd have built up some equity and could potentially move to a lower loan-to-value bracket, which means their repayments may not have to rise excessively, if at all.
Happily, these are options many borrowers are already considering. The Santander data went on to reveal that 23% of respondents would remortgage to a shorter term if their finances improved and 37% would overpay whenever they could, and another 18% would shorten the term when they moved house. Any one of these could help ensure affordability for the long term, but it's important to remember that finding the best mortgage rate can be just as important – use our mortgage search tool to get started, and see how low your repayments could be.
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