A fifth (19%) of first-time buyers took out mortgages lasting over 35 years in March, according to figures released by UK Finance.
UK Finance’s Household Finance Review analysed the most common long-term mortgage statistics in Q1 of this year.
Not only were first-timers interested in loans lasting over 35 years, but a further 36% opted for loans between 30 and 35 years.
Meanwhile, only 25% of home movers opted for mortgages between 30 and 35 years, and only 8% took out loans that lasted 35 years or more.
Nick Mendes, mortgage technical manager at John Charcol, said: “There has been a correlation between property price and the length of the average mortgage terms increasing.
“Historically, terms of 25 years would have been many applicants’ defaults option, but there has been a steady increase over the last few years with first-time buyers choosing to take the mortgage over 35 and 40 years.
“Since the pandemic property prices have increased beyond expectations – partially fuelled by pent up demand and low rates – as a result client are having to stretch their budgets to get on the property ladder, the most common approach is by extending the term as thing bring down your monthly repayments.
“First-time buyers are not the only applicants to have chosen to extend their terms, we have seen homeowners coming to the end of their fixed deal looked to extend also considering increased mortgage rates and households’ expenditure such as utility and energy costs, look to extend to help soften their monthly outgoing.
“Lenders attitudes have also changed, more lenders now accept applicants below a certain age to lender beyond state age, stating the mortgage must end by the age of 75.”
He continued: “It’s important to understand the risks when choosing a mortgage over a longer period.
“Firstly, by increasing the term of your mortgage, you can lower your monthly payments and reduce your monthly outgoings.
“However, doing this also means there will be an increase in the overall cost of borrowing as you’ll be paying interest on a more slowly reducing mortgage amount for a longer period.
“Lower monthly repayments might be useful as a short-term cost-cutting solution, but you want to ensure that you review the term each time your fixed rate comes to an end when remortgaging or reviewing your options when home moving.
“First-time buyers do have the benefit of time, with earnings expected to increase during the mortgage term it’s important to continually review to ensure your circumstances and make the right decision which could save thousands in the long term.
“Homeowners with a longer term should also consider to overpayments.
“Each year, fixed rate products typically allow you to make overpayments of up to 10% of the outstanding balance so you can pay off your mortgage quicker.
“You can typically do this by increasing your monthly direct debit or make lump sum payments.”
Mendes added: ”While everyone has the best intentions to make overpayments or reduce the term, unfortunately we do not find this happening on a consistent basis.
“Other aspects take priority in many homeowner’s minds such as the costs of living.
“Rather than taking a pragmatic view homeowner are taking an opportunist view of their future circumstances.
“Another concern for extend terms are FTBs preparing adequately for retirement, we should be aiming for at least 15% to be paid into our pensions each month to ensure a comfortable retirement.”
He concluded: “By extending the term and putting more income aside to pay your mortgage or extend the term beyond state age will mean when it comes to retirement pension pots wouldn’t have had the time to increase.”
