The Bank of England has reported an increase in the number of homeowners taking out mortgages that last 35 years or more. In response, it says that lenders should follow the Financial Conduct Authority's (FCA) responsible lending rules, so that changes to future income and expenditure are considered before such terms are agreed.
The number of homeowners arranging mortgages over 35 years or longer stood at just 4% in the first quarter of 2021, a number that has increased to 12% by the second quarter of 2023.
In this article, we explain why more mortgage customers are choosing long-term mortgages, the pros and cons of a long-term mortgage, whether this solution is right for you and the alternatives that you should explore before you decide.
Why are more people choosing 35-year mortgages?
Simply put, choosing a longer mortgage term has the effect of reducing monthly mortgage repayments. Faced with higher interest rates, spreading a mortgage loan over additional years could be a desirable option for those who are struggling to afford to remortgage, move house or purchase their first property.
According to industry body UK Finance: "around 800,000 fixed-rate mortgages will need to be refinanced in the second half of this year, and a further 1.6 million in 2024, out of a total of around 9 million residential mortgages."
Choosing a longer-term mortgage can relieve the immediate financial pressure on households, but it does beg the question of whether those households could realistically afford their mortgage payments carrying on into retirement. Additionally, customers choosing a longer mortgage term will pay far more in interest than someone who repays the same mortgage amount over fewer years.
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The pros and cons of long-term mortgages
Pros
- Reduces your monthly mortgage payment
- Easier to meet affordability criteria
- Allows time to plan how to tackle increased mortgage costs
Cons
- Increases the overall cost of repaying your mortgage
- You may need to work longer in order to repay your mortgage
- You may have to prove pension income if the term takes you into retirement
Is a longer-term mortgage right for you?
Working out whether you should increase the term of your mortgage will largely depend on your personal circumstances and affordability. It is certainly one way to reduce your monthly mortgage outgoing but you should weigh this up against the additional overall cost, across the whole mortgage term. Spreading your mortgage loan over a longer term means that you will pay interest on the mortgage loan for longer and this in turn will increase the overall cost of repaying your mortgage.
Overall cost of a 25-year mortgage vs 35-year mortgage
| 25-year term | 35-year term | |
| Amount borrowed from outset | £200,000 | £200,000 |
| Interest rate | 5% | 5% |
| Monthly mortgage payment | £1,169 | £1,009 |
| Overall cost of repaying the mortgage^ | £350,754 | £423,938 |
^The overall cost assumes that your interest rate remains the same throughout the term of your mortgage. While not realistic, it does serve to demonstrate the effect of extending the mortgage term
In the above example, choosing a 35-year mortgage term could save around £160 each month when compared to a 25-year mortgage term. However, while the monthly saving is significant, the mortgage will need to be repaid for an additional 10 years, resulting in an extra cost of £73,184 overall.
You can check how different mortgage terms affect the monthly cost of your mortgage as well as the overall cost using our mortgage rate comparison tool. Simply sort deals based on 'interest rate' and 'overall cost' to see the difference this makes.
Alternatives to increasing the term of your mortgage
- Shop around for a better mortgage deal - perhaps the most effective alternative to increasing your mortgage term is to find a better mortgage deal with a lower interest rate. Product transfers can be tempting due to the simplicity of staying with your current lender but you should check in case you are able to get a better deal by switching lenders.
- Overpay your mortgage - although most mortgage deals limit how much you can overpay your mortgage by without facing early repayment charges, you will usually be able to exceed these limits at the end of a mortgage deal period when the limits do not apply. Reducing the balance of your mortgage will in turn reduce your monthly mortgage payment.
- Switch to an interest-only mortgage - switching to an interest-only mortgage, either in part or in full, will reduce your monthly mortgage payment. This is because you are only required to pay the interest that accrues on your mortgage loan and not the capital. However, you will usually need to demonstrate how you will repay the interest-only portion of your mortgage at the end of the mortgage term.
- Consider an offset mortgage - an offset mortgage allows you to use your savings in order to offset the interest charged on an equivalent value of your mortgage balance, thus reducing your overall payment. Of course, you will need to have savings for this to work and you may be limited by the number of offset mortgage deals that are available.
If you are unsure about your options and which choice to make, it can be extremely helpful to speak to a specialist mortgage broker. Mortgage brokers can search the market on your behalf, have a deep understanding of lenders' qualifying criteria and can access mortgage deals that may not be available directly to customers.
We have vetted the services provided by online mortgage broker, Habito* and found that the advisers have excellent knowledge of the mortgage market and work with customers to meet their goals and priorities. They have access to over 20,000 mortgage deals from around 90 lenders giving you great scope for finding a mortgage deal that is the perfect fit for you and they do not charge a fee for the services provided.
You can also search for a mortgage broker local to you by using the online professional directory VouchedFor*. It provides a helpful listing of mortgage professionals in your area which you can sort based on customer reviews.
If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses or take advantage of any exclusive offers - Habito, Vouchedfor
