In an attempt to keep monthly mortgage repayments as low as possible, an increasing number of homeowners (and first time buyers, of course) in the UK are searching for deals which offer a term of 30 years or more, according to the Mortgage Advice Bureau who have reported that between April and June this year (2015), a significant 20% of those looking for a mortgage were seeking deals of this length. In comparison, this stood at just 8% this time last year.

A Typical Term In The UK Is 25 Years

Typically, a mortgage term will be no more than 25 years, however an increasing number of Brits are on the hunt for deals which allow them to spread the cost of borrowing over 30 years, sometimes more. This comes, in many cases, due to the fact that it is expected that the Bank of England will push up their base rate early next year, causing the currently all-time-low mortgage rates to rise. For those on a fixed deal, this won’t have an immediate impact however for those on a variable rate mortgage, the cost of monthly repayments could shoot up literally over night.

Those In Their Thirties & Older Are Facing Problems

Whilst 25 years may be the typical term for a mortgage to be taken out over in the UK, many buyers are finding that they’re unable to be accepted for anything longer, however, given the fact that many first time buyers are now into their thirties once they’ve saved up a deposit large enough to buy. As such, it’s often the case that, with lenders wanting mortgages to be repaid in full by the age of 65, these longer deals are simply unavailable for many.
Add to this the fact that property values are soaring above incomes in many areas, homebuyers are finding themselves in a difficult situation. They need these longer term deals to be able to afford repayments yet it’s taking too long to save up a deposit to be able to obtain them, even, in some cases, with the likes of the Help To Buy Scheme.

A Longer Term Means Higher Repayments

Whilst more than one fifth of mortgage applicants are now seeking a longer-term deal, it’s important that it is understood just what this means and why repayments can be deceiving. In the short term, yes, monthly repayments will be lower, however over the entire term of the mortgage, repayments will be significantly higher than on a short term.
The example recently given to the Daily Mail is:

The average house price in Q2 2015 stood at £151,668.

By spreading a mortgage over 30 years the monthly repayment would be £551 – £83 per month less than paying the same loan over 25 years.

However the total cost of repaying a mortgage over 30 years is £23,297 higher than over 25 years, with 25% more interest due in total.

The different between borrowing over 35 years compared with 25 is even greater. This would save £141 in monthly repayments initially but over the lifetime of the loan a homebuyer would pay an extra £47,707.

All in all, whilst for many a longer term MAY seem attractive, when you start to look at things in the longer term, it’s clear that they might not always be the great solution they initially appear to be.