Mortgages

57% of mortgages now offer 40-year terms

Just 168 products, or 3.44% of the market, offer a maximum term of up to 25 years.

Rozi Jones
|
14th October 2019
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"By extending their mortgage term, borrowers may be looking to reduce their monthly repayments and therefore are more likely to meet strict affordability requirements."

2,782 residential mortgage products, equal to 57% of the market, now have a maximum mortgage term of up to 40 years, up from 2,412 products (55.55%) twelve months ago, according to new Moneyfacts data.

Its data shows that 35.5% of products offer a maximum term of 35 years and 4% are available up to 30 years. Just 168 products, or 3.44% of the market, offer a maximum term of up to 25 years.

Darren Cook, finance expert at Moneyfacts, said: “Historically, a standard mortgage term generally amounted to a period of 25 years, but a growing majority of products are now available to be extended for a period of 40 years. By extending their mortgage term, borrowers may be looking to reduce their monthly repayments and therefore are more likely to meet strict affordability requirements.

“Yorkshire Building Society is the latest mortgage provider to increase its maximum mortgage term criteria to 40 from 35 years, at the same time increasing its criteria on the maximum age of a borrower at the end of a mortgage from 75 to 80 years.

“It appears that mortgage providers are permitting extended maximum mortgage terms of up to 40 years in conjunction with extending the maximum age that a borrower may be at the end of a mortgage. Our recent research shows that more than four-fifths (83%) of residential mortgages can end when the borrower is 70 years of age or older.

“A longer-term mortgage may reduce monthly repayments, however, the additional interest that accumulates over an extended mortgage term could be considerable. For example, a £250,000 repayment mortgage at a rate of 2.50% over 25 years equates to a monthly repayment of £1,121.54 and total interest payable would be £86,463 over the term. However, the same mortgage taken over a 40-year term would reduce the monthly repayments to £824.45, but increase the total interest to be paid to £145,733, resulting in an additional £59,270 in interest.

“Furthermore, the longer a borrower extends their mortgage term, the older they will be when they have finally repaid their mortgage. An extended mortgage term may go beyond pension age, so it is imperative that these borrowers consider their options and attempt to make provisions if their personal circumstances change.”

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