First-time buyers struggling to get on the property ladder might find it easier as 40-year terms become ‘the new normal’ according to some mortgage lenders.
Research conducted by Which? has revealed that around half of mortgage lenders say that they offer 40-year mortgage terms. The most recent mortgage data from the Bank of England (Autumn 2017) showed that 1 in 6 mortgages were granted for 35 years or longer. But are mortgage providers really lending for 40 years?
According to UK Finance, in the first half of 2018, only 4% of mortgage approvals were on terms of 36 years or longer. The Which? mortgage satisfaction survey found only eight homeowners out of 3,072 surveyed had a deal lasting 40 years or more, and just 27 with a term of 36 to 40 years.
Building societies lead the way
Despite these statistics, 34 lenders are claiming to offer longer-term mortgages. Which? found that 1.4% of mortgages approved by the Family Building Society had a term longer than 36 years. Hanley Building Society stated that 4.9% of its approvals since the beginning of 2017 were for 36-40-year terms and Newcastle Building Society stated that 12% of its first-time buyer enquiries this year were for terms longer than 35 years.
In September, mortgage lender Together extended the maximum term on its residential mortgage products to 40 years. The lender stated that the term is specifically aimed at first-time buyers struggling to get on the property ladder, by bringing down the monthly cost of borrowing by spreading repayments out over a longer period.
Borrowers must weigh up the pros and cons
While a 40-year mortgage may seem attractive to borrowers who want to keep monthly payments low, they will pay a higher rate, more in interest and build equity in their property at a slower rate than a shorter-term mortgage. However, it does offer greater flexibility and could make a big difference to first-time buyers struggling with affordability in more expensive areas of the UK.
Despite the Which? findings it does seem that borrowers are finally cottoning on. Managing Director of Twenty7Tec, James Tucker has stated that over the past 12 months their data is showing a consistent trend towards longer-term mortgages. Brokers searching the Twenty7Tec system for deals over 40 years almost trebled from 9,305 in January 2017 to 26,829 in August 2018.