With the average age of a first-time buyer at 32, and mortgages with maximum terms of 40 years becoming the new norm, generations of homeowners could be paying off their mortgages into their 70s and beyond.
Around 5 years ago, the number of residential mortgage deals that had maximum terms of 40 years was around 36%. Now though this has risen to 57%, at least according to the latest research from data experts at Moneyfacts.co.uk.
Traditional mortgages disappearing
These latest statistics further highlight how the traditional 25-year mortgage is increasingly becoming a thing of the past, especially for those looking to get on the property ladder for the first time. More and more providers are now offering 40-year maximum term deals, with Yorkshire building society becoming one of the latest to do so.
Research by Yorkshire Building Society has suggested that first-time buyers are increasingly purchasing large and/or more expensive homes than they did a decade ago, driving up the demand for more affordable monthly payments.
Data from Moneyfacts has shown that 6 out of every 10 mortgage deals on the market now come with a standard maximum term of 40 years. The demand for these terms has continued to rise since the financial crisis in 2007. Lenders have also been extending their maximum age limits too.
Higher overall costs
Longer terms are allowing borrowers the opportunity to reduce their monthly payments, which in turn makes them better able to pass strict affordability rules set by the banks. However, these longer terms also mean that borrowers will end up paying a lot more in interest on average. The longer the loan the higher the overall cost.
The added cost that you as a new homeowner could incur over the life of the loan could be quite significant. However, there are some mortgage deals that allow you the chance to overpay each month, usually up to 10% of the mortgage balance a year. Taking out a longer term mortgage that allows for overpayments can have the same effect as shortening the term, helping you to clear the loan quicker, as there will be less interest to pay.
For some borrowers, opting for a longer-term mortgage that allows for regular overpayments could be the most flexible and cost-effective option. Keep in mind though that not all mortgage deals allow for overpayments, so it’s important to check the details of yours first.
Speaking to our friendly team of mortgage advisors at TaylorMade can help you decide exactly what’s best for you. We’ll ensure that you’re treated fairly by lenders, and that you’re given the tools and information you need to make the most informed financial decisions.
Please get in touch with us today.
