Mortgages

Majority of residential mortgages offer 40-year term

Just 2.74% of products have a maximum term of 30 years, down from 19.87% in March 2014.

Rozi Jones
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18th March 2019
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"Between March 2014 and today, the number of 25-year maximum term mortgages has fallen by 152, now accounting for only 2.97% of all residential products available."

50.89% of all residential mortgage products on the market now have a standard maximum mortgage term of up to 40 years, up from 35.93% five years ago, according to Moneyfacts data.

43.40% of products offer terms up to 35 years and just 2.74% have a maximum term of 30 years, down from 19.87% in March 2014.

Darren Cook, finance expert at Moneyfacts, said: “Historically, a standard mortgage term generally amounted to a period of 25 years, but most 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.

“Not only are the number of mortgages at a maximum term of 40 years increasing, but the number of products at max 25-year terms and 30-year terms are decreasing. Between March 2014 and today, the number of 25-year maximum term mortgages has fallen by 152, now accounting for only 2.97% of all residential products available (down from 7.54%). Meanwhile, the number of mortgages with a 30-year max term have dropped even more significantly, falling from 606 to 140 over the period and now account for just 2.74% of the market, down from 19.87%.

“It also 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 71% of all residential mortgages can end when the borrower is 75 years of age or older, whereas five-years ago this figure stood at 52%.

“A longer-term mortgage may reduce the monthly repayments of a mortgage, however, the additional interest that accumulates over an extended mortgage term could be considerable. A £200,000 repayment mortgage at a rate of 2.50% 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 down to £659.56, but increase the total interest to be paid to £116,588, resulting in an additional £47,419 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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