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Borrowers look to longer mortgage terms

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  • 17/08/2015
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There is increasing appetite for longer term mortgages as homeowners struggle with monthly payments, research from the Mortgage Advice Bureau (MAB) shows.

With property prices in many areas passing their pre-crash peak, many people are finding it difficult to get onto the ladder. Those who have been able to buy have been searching for longer mortgage terms to help keep monthly payments to a minimum, the research found.

MAB said 21% of buyers were looking at terms of more than 30 years compared to 8% a year ago.

However, the firm warned the added interest would significantly increase the cost of the loan. Reducing monthly repayments by can cost almost £48,000 extra over the lifetime of a loan.

It said that based on today’s average rates, the cost of repaying the average 30-year mortgage is £23,297 higher than doing so over 25 years, with 25% more interest paid. Borrowers would save just £83 on repayments each month.

Borrowing over 35 years compared with 25 would save £141 each month, but an extra £47,707 will have to be repaid.

Brian Murphy, head of lending at Mortgage Advice Bureau, said: “For those fortunate enough to own their home, it is unsurprising that they are looking to capitalise on the profit levied from record house prices by remortgaging.

“Even more so, they can get rid of their debt quicker and reap the benefits of smaller total repayments as homeowners can often access lower rates thanks to their equity gains.

“With a base rate rise coming into play soon, homeowners who haven’t yet reviewed their existing terms should make the most of the current mortgage climate to secure the best deals,” he added.

“On the other hand, homebuyers are tearing up the rule book by searching for longer term mortgages to secure cheaper monthly repayments. However, in the long run this can add up to an extra outlay of thousands with the added interest that comes with borrowing for longer.”

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