Extra-long mortgages of over 35 years used to be unusual. Twenty years ago only 2% of first-time buyers had one. But by the start of 2022 this has risen to about 8% and that had doubled to 17% by the end of 2022.
In July 2023, Taylor Wimpey said that in the first half of 2023:
- 27% of its first-time buyers had a mortgage of more than 36 years, up from 7% in 2021 (The very low figure in 2021 would probably have been the result of Help To Buy, which has now ended.)
- 42% of its non first time buyers had a mortgage of more than 36 years, up from 28 per cent in 2021.
Contents
Higher interest rates are forcing longer terms
Before 2022, the main driver for longer terms was higher house prices.
But this sudden spike in 2022 and 2023 has been caused by the jump in mortgage rates. Long mortgages have lower monthly payments because the capital is repaid more slowly.
Lenders will perform an affordability check before offering a mortgage. Sometimes their model will say the monthly payments on a 30-year mortgage are too high for you to manage (even if you think you are already paying more than that in rent!) but a 35-year mortgage is possible.
The downsides for borrowers
But what is the right length mortgage for you?
Is a very long term a sensible choice, or is it setting up potential problems in the future?
By opting for a lengthy mortgage, you are delaying the point you are mortgage-free.
That may mean you have to retire later or stay in a stressful job for longer. Or that you have no time when the mortgage is cleared to increase your pension contributions.
Retirement, health problems and pensions may all seem a long way away when you are 30. But your choice of a mortgage term could make a significant difference to your life many years ahead.
The three potential problems with ultra long mortgages are:
1. Paying more interest over the whole term
You will pay far more interest overall with longer mortgages.
Look at the figures for a mortgage of £100,000, assuming the interest rate is 5% throughout:
| monthly payment |
total interest paid |
capital repaid after 5 yrs |
|
| 25 years | £585 | c.£75k | c.£11k |
| 30 years | £537 | c.£93k | c.£8k |
| 35 year | £505 | c.£112k | c.£6k |
| 40 years | £482 | c.£131k | c.£4k |
If you want to look at possible figures for your situation, use this MSE calculator.
2. Harder to buy your next house
That table also shows the impact of the longer mortgage term on how quickly you repay capital.
If you want to move after a few years, you may be horrified at how little capital you have repaid in a long mortgage. But with a 25 year mortgage you will have repaid more nearly three times as much capital after 5 years as you would in a 40 year mortgage.
If you are buying your forever house, this may not feel important. But many first-time buyers are buying a flat or starter house, hoping to be able to move somewhere larger in a few years as their family gets larger.
Neil Hudson points out:
While a longer mortgage term may help first-time buyers get on what they think is a housing ladder, it actually limits their ability to climb it.
3. Harder to cope with any problems
If you have financial problems, one of the ways your mortgage lender may be able to help is by extending the term of your mortgage to reduce your monthly payments.
But this help saves you less if your mortgage is already long. And there is usually a maximum limit your mortgage lender will not extend beyond.
For example, if your mortgage term has reduced to 21 years and the balance is £250,000, If your term has dropped from 25 years to 21 years, then increasing it to 30 years would save you more than £250 a month at an interest rate of 5%.
But if the same mortgage had started off at 35 years, dropped to 31 years, then increasing it to 40 years would only reduce your payments by just over £100 a month.
So if you start with a long mortgage, you have less flexibility in the future if you have problems.
Should you go for a very long term mortgage?
There are four groups of people that can find long mortgages a perfect product:
- you are at an early stage of a career where significant pay rises are very likely to come over the next 5-10 years without you needing to move house;
- you expect to get significant bonus or commission income which your mortgage lender isn’t taking into account – then you can plan to use your bonus to overpay the mortgage and shorten the term every year;
- you have high childcare costs which you know will drop in the next couple of years, so at that point you can start overpaying the mortgage and bringing the term down;
- you are buying your “forever home” – you don’t intend to move again. Then you may not be worried by the extra interest you will be paying.
When you expect to move and borrow more in a few years, it’s good to be wary of taking the “easy” option of lower mortgage payments now.
But if that is all you can afford, many people will still find this preferable to renting.
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James says
Hi Sara
You’ve helped me out with payday loans & credit card queries, & in 3 months my credit card debt will be gone so thanks,
I am planning on buying a flat end of the summer next year, I’ve looked at soft quotes on mortgages and over 25-28 years I can be leant 190k-200k, if I look at a 40 year mortgage can I then borrow more ?… this is the difference between getting a 1 bedroom flat and a 2 bedroom flat
Thanks
James
Sara (Debt Camel) says
Yes you can often borrow more if the mortgage is longer as the repayments are lower.
Can I ask how old you are? Do you need two bedrooms?
Do you think you could overpay the mortgage?
James says
Hi Sara
Thanks, I am 33 so I will be buying when I’m 34, I’ve seen most will give you a 40 year mortgage 35 or under and some even go to being 40 years old
I don’t need 2 bedrooms, advice from my parents is to get a 2 bed, I could get a 1 bed in my location for around 230k, & a 2 bed around 300k (maybe a little more), I’ll have a 45k-55k deposit
Yes I will definitely be able to over pay, I’m happy to spend £1000 a month on mortgage & interest repayments (40% of my monthly take home after tax), I’ve obviously looked at various options and if I was to borrow 250k over 40 years, I’ve done this at a rate of 2.5% interest (i have no idea what interest rate I’ll get but I know I probably won’t get this 0.5% that are currently around with my credit history) & this is. Repayment of £825 a month
Or I borrow 170k over the same length of time for a 1 bed which is £560 a month but then I may look at 30-35 year mortgage
Sara (Debt Camel) says
So you have done the arithmetic. Do talk to a broker now about possible rates.
This isn’t financial advice but the obvious which is probably what your parents are thinking of – a 2 bed flat is a lot more flexible. If you get a partner extra space makes life much nicer. You could get a lodger for a few years – tax free income to blitz the mortgage down? And for many people being able to shut the door on your study is the difference psychologically between “working from home” and “living at work”.
James says
Hi Sara
Yes I am really looking forward to getting my own place, I’ve rented with other people for so long be nice to just have some peace, however work have announced we’ll be wfh 3-4 days a week after Covid so it would make sense having that space for work, & if I can borrow that much I will go for that option,
You may have already done this in another article could you recommend any mortgage brokers that work with people like me with a pay day loan history ?
Thanks
James
Sara (Debt Camel) says
ah. When was your last payday loan?
James says
My last payday loan was taken out February 2018, my last payday loan was paid off in December 2019,
I do have a loan with ‘likely loans’ at 28% interest which is completely paid off this June (if not earlier), but with it not being a payday loan hopefully this doesn’t matter
Sara (Debt Camel) says
ok they should probably be OK as you have a decent deposit. Definitely talk to a broker.
James says
Thanks Sara I’m not gonna look to get a mortgage for another 12+ months so hopefully that helps, can you recommend any brokers ?
Thanks
James
Sara (Debt Camel) says
Time definitely helps.
London & County and Habito are commonly suggested. You should not need a “bad credit” broker.
James says
Ah fantastic thanks for your advice!
James
Louise says
Hi Sarah
I’m a single 26year old who’d like to purchase my first house. My salary is £46,895. In London a 2 bed house I’ve seen will cost £275k, with a £30k deposit. I’ve been offered a 37year mortgage to afford this. Is this a good idea or way too long? With a standard 25year mortgage I’ll be looking at a 1 bed flat according to the numbers. I’d 100% be getting a lodger (have looked into the law, tax free amount etc) so would be easy for me to overpay the mortgage.
Sara (Debt Camel) says
2 bed houses are so much more flexible. If the numbers work for you, I would take the 2 bed and a lodger for the first few years. Who knows if you will meet a partner and want the extra space? or earn more and enjoy being able to work from home in your own office?