Find out more about longer-term mortgages
- Opting for long-term mortgages with lower monthly repayments can make it easier for first-time buyers to get a deal
- A long-term mortgage may lead to an increased overall cost when compared to a shorter-term mortgage, because you’ll typically pay more in interest all-told
- Older people may struggle to get a longer-term deal, as they'll have to provide proof they'll have the income to meet repayments in retirement
The biggest financial undertaking you'll ever encounter is probably going to be your mortgage. It's important not only to get the right one, but to make sure you can afford the repayments.
One way to make your repayments more manageable is to opt for a longer term on your mortgage.
A typical mortgage lasts for 25 years, but people are increasingly looking into longer mortgage terms – some as high as 40 years – so they can get on the housing ladder.
So, for many first-time buyers, longer-term mortgages are a way to make the monthly mortgage repayments more affordable. But is it the right option for you?
Why compare 30+ year mortgages?
The English Housing Survey reported in January 2018 that 52% of first-time buyers had a mortgage term of 30 years or longer.
However, if you fall into an older demographic, you may struggle to obtain a longer-term mortgage deal. This is because the closer to retirement you are, lenders may feel you'll be less able to meet the repayments.
If your chosen term does extend into your retirement, you'll need to prove to your mortgage provider that you'll have the necessary income to meet repayments.
The increasing popularity of longer-term mortgages can be attributed to a combination of factors: one of the most significant is rising house prices. The average house price has risen by nearly £40,000 over ten years between December 2007 and December 2017.
Alongside this, affordability rules introduced by the Mortgage Market Review (MMR) in 2014 made it slightly more difficult to get approved for deals that might stretch your household finances.
This is as good as it is bad for house buyers. It means they're less likely to overstretch on their mortgage payments, but also restricts them to houses within a certain budget bracket.
So, they turn to longer-term mortgages to reduce the amount they have to repay each month, which makes their mortgage more affordable.
However, this only works on a short-term basis. If you can afford to take out a 25-year mortgage without stretching your finances, it's definitely worth considering.
If you'd like to find out what you may be able to afford, you could compare mortgages using the MortgageGym calculator when you click 'Get Rates' at the top of the page. The figures change depending on various factors, including the length of the term.
A note of caution: although you'll be able to see a number of mortgages and compare the cost over 25 years, the maximum term MortgageGym will compare is 35 years.
Need more information?
Advantages of a longer-term mortgage
There are several advantages to taking out a mortgage with a longer term, including smaller monthly payments, affordability and flexibility.
Monthly mortgage repayments
A longer mortgage term stretches out the period within which you need to repay your mortgage.
So, if you had a £200,000 property with a 10% deposit, you'd get a £180,000 mortgage. You might pay around £850 per month – including interest of roughly 3% – if your mortgage term was 25 years.
For a 35-year mortgage, the monthly payments might decrease to around £690: much more manageable!
When the Mortgage Market Review came into force in August 2014, mortgage applicants became subject to a more stringent line of questioning about whether they can afford the mortgage.
Thanks to the reduction in monthly payments that comes with a long-term mortgage, opting for one may make a prospective lender more certain that you can afford it.
Lenders may ask for a number of bank statements and payslips. They may also ask questions about incomings and outgoings, and your spending habits.
This could include questions about current debt – including loans and credit cards, travel costs and gym membership. They may even ask whether you have any children, or plan to have any in the future.
If your monthly mortgage payments are smaller, it'll be easier to show that you can keep up with mortgage payments down the line, with money left over for bills, essentials and disposable income.
Mortgage overpayment and flexibility
Taking out a mortgage might seem like the biggest, scariest decision you'll ever make – especially if you think you're signing your life away for over 30 years.
But it's important to remember that the initial term you choose isn't set in stone: just because you're taking out a 30-year mortgage now doesn't mean that's how long your mortgage will end up lasting.
You could choose a shorter mortgage term if you remortgage.
In fact, taking a longer mortgage for the sake of smaller monthly repayments may be the right choice for you initially, but that could easily change. You might get a pay rise, for example – or you could come into money, or simply decide to move.
All this could mean your mortgage could change. You might even be able to start overpaying.
It's worth checking you're allowed to overpay when you take out your mortgage initially. Many lenders do allow it, but others won't.
It's a process as simple as its name: you simply pay more than you'd agreed to. This could be on a monthly basis, or whenever you have the means to do so.
Overpaying like this reduces the total amount you have to pay overall, so it's worth investigating.
Disadvantages of a longer-term mortgage
Even if you're attracted to the lower monthly repayments, there are sadly some disadvantages to longer-term mortgages that you should think about.
- 100% mortgages
- First-time buyer mortgages
- Shared ownership schemes
Mortgage interest rates
Unfortunately, a longer-term loan means you'll pay more in interest. This means your overall repayment will be higher.
Taking that £180,000 mortgage from earlier, a 25-year mortgage might lead to a total repayment of £250,000, but a 35-year mortgage could be closer to £300,000 in total.
So, if you do opt for a long-term mortgage, it's a good idea to make overpayments as and when you're able to. This'll help to reduce the amount you owe quicker.
The clue's in the name – there's a longer term
Although having a longer-term mortgage may seem like the safest option in terms of affordability, it could be trickier to manage if you ever fall into difficulty repaying your mortgage.
In the past, mortgages tended to last for a maximum of 25 years. So, if a homeowner ever had a problem with repayments, their bank might be able to extend the term – thereby making the monthly repayments more affordable.
However, if you're already in a position where your mortgage is as long as your lender's prepared to make it, you may not be able to extend the term.
This could leave you in a perilous position, especially if you're an older person taking out a longer mortgage. A bank may not be willing to extend a mortgage into your old age, when you might've retired.