Did you know that the number of first-time buyers taking out a mortgage with a repayment term ranging between 31 and 35 years doubled in the 10-year period between 2005 and 2015?
What’s more, in March 2023, a record-breaking 19 per cent of first-time buyers took out a mortgage lasting for at least 35 years.
Are longer-term mortgages worthwhile?
Let’s say you want to purchase a £250,000 property with a 30 per cent deposit, which means you need to borrow £175,000. At a rate of 3 per cent, spreading your borrowing across 25 years equates to a monthly mortgage payment of £830. If you were to take out a 30-year mortgage, the monthly payment would be £738, while the same level of borrowing across 35 years would equate to a monthly payment of £673.
Longer-term mortgages mean more interest
As interest is due on mortgage repayments, spreading the cost over a longer term means you will pay more interest. When borrowing £175,000 over 25 years, you will pay back just over £248,000 including £76,000 worth of interest. By stretching your mortgage term over 30 years, you will pay an additional £16,500 in interest, or £34,000 over 35 years.
Longer-term mortgages can also mean more flexibility
There are many additional costs that buyers need to factor in when stepping onto the property ladder. The home buyers report cost from a conveyancing company such as https://www.samconveyancing.co.uk/news/house-survey/homebuyers-survey-cost-9958 is just one example of an upfront cost that is worthwhile investing in.
As monthly repayments are lower when mortgages are stretched over a longer repayment term, 30-year mortgages are an attractive option for many buyers who want to free up as much of their monthly income for day-to-day spending and ensure they have a cushion to protect against things such as the cost of living crisis.