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Forty-year terms gain popularity as lenders help borrower affordability – Moneyfacts

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  • 25/06/2019
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Forty-year terms gain popularity as lenders help borrower affordability – Moneyfacts
Mortgage products with 40-year terms now account for 55 per cent of deals available as lenders increasingly lengthen loans, Moneyfacts has said.

 

The number of longer loans and the proportion of the market they comprise has grown significantly over the last five years. This approach has become more widespread because it supports borrowers to meet increasingly tough affordability requirements.

Moneyfacts counted 2,744 deals with 40-year terms available at the moment, up from 2,604 in March and from 1,217 in June 2014.

The market share of 40-year terms has increased from 51 per cent three months ago and 42 per cent in June 2015.

Moneyfacts noted that the standard mortgage term was 25 years in the past, but said most products were now available over 40 years.

Additionally, it highlighted a reduction in the number of products available up to a maximum term of 35 years, suggesting a shift toward products with the additional five years.

 

Meeting affordability

Spokesman Darren Cook noted that by extending the mortgage term, borrowers can reduce their monthly repayments and therefore are more likely to meet strict affordability requirements.

“A longer mortgage term may reduce the monthly repayments of a mortgage, however, the additional interest that accumulates over an extended mortgage term could be considerable,” he said.

“For example, a £200,000 repayment mortgage at a rate of 2.50 per cent over 25 years equates to a monthly repayment of £897.23 and total interest payable would be £69,169 over the term.

“However, the same mortgage taken over a 40-year term would reduce the monthly repayments to £659.56 but increase the total interest to be paid to £116,588, resulting in an additional £47,419 in interest.”

 

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