40-year mortgages help buyers beat stricter affordability rules

Over 50 per cent of all mortgage products available to home buyers in the UK currently have a standard maximum term of up to 40 years.

Just five years ago only just over a third of mortgage products had terms that long.

The data comes from independent mortgage monitor Moneyfacts, which says that historically, a standard mortgage term generally amounted to a period of 25 years.

The monitor says that by extending the typical mortgage term, borrowers may be able to reduce their monthly repayments and therefore are more likely to meet strict affordability requirements.

“Not only are the number of mortgages at a maximum term of 40 years increasing, but the number of products at max 25-year terms and 30-year terms are decreasing” says Moneyfacts’ finance expert Darren Cook. 

Between March 2014 and today, the number of 25-year maximum term mortgages has fallen by 152 and now account for only 2.97 per cent of all residential products available - down from 7.54 per cent. 

Meanwhile, the number of mortgages with a 30-year max term have dropped even more significantly, falling from 606 to 140 over the period and now account for just 2.74 per cent of the market, down from 19.87 per cent.

“It also appears that mortgage providers are permitting extended maximum mortgage terms of up to 40 years in conjunction with extending the maximum age that a borrower may be at the end of a mortgage. Our recent research shows that 71 per cent of all residential mortgages can end when the borrower is 75 years of age or older, whereas five-years ago this figure stood at 52 per cent” explains Cook.

But Cook warns that of course while a longer-term mortgage may reduce the monthly repayments of a mortgage, it hikes up the additional interest.

He says a £200,000 repayment mortgage at a rate of 2.50 per cent 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 down to £659.56, but increase the total interest to be paid to £116,588, resulting in an additional £47,419 in interest.

“Furthermore, the longer a borrower extends their mortgage term, the older they will be when they have finally repaid their mortgage. An extended mortgage term may go beyond pension age, so it is imperative that these borrowers consider their options and attempt to make provisions if their personal circumstances change” he cautions.