There are now a growing number of providers who will extend mortgages to a maximum of 40 years, according to recent data released by financial data site Moneyfacts.co.uk.
This contrasts the traditional mortgage duration length of around 25 years or so, which has been the standard for decades. It appears many providers are now extending the maximum terms on their mortgages to unprecedented limits, and borrowers are increasingly keen to take them out, according to the data from Moneyfacts.co.uk.
Changing dynamics in the mortgage market
Demand for 40-year mortgages is increasing over time with as many as 50.9 per cent of maximum term mortgage products now on offer with 40 year terms. This compares with just 35.9 per cent in 2014, according to the recent data from Moneyfacts.co.uk.
During the same period, 25-year mortgages have become far less prominent, with their share of the market declining from 7.5 per cent to as little as 3 per cent between 2014 and 2019. The decline was even greater for 30-year mortgages, which registered a decline from 19.9 per cent to 2.7 per cent over the same period.
It appears that in barely half a decade, the industry has shifted towards mortgages of far greater length.
Stricter affordability rules
In an era of stricter affordability rules on mortgages, many borrowers have decided to seek longer-term mortgages, in order to get onto the property ladder. However, extension of your mortgage terms adds extra costs in the form of higher interest in the long run, according to Moneyfacts.co.uk.
One of the consequences of taking out a 40-year mortgage as opposed to a 25-year one is that borrowers are able to reduce their monthly mortgage bills, according to Darren Cook, finance expert at Moneyfacts.co.uk. He explained: “A £200,000 repayment mortgage at a rate of 2.5 per cent over 25 years equates to a monthly repayment of £897.23…the same mortgage taken out over a 40-year term would reduce the monthly payments to £659.56.”
Increased chances of paying mortgages into retirement
As borrowers request longer-term mortgages and as the population starts to age, mortgage providers are increasingly willing to extend the maximum age at which borrowers can expect to have reached the end of their mortgage. In 2014, 52 per cent of mortgages were allowed to be repaid by the age of 75. However, in in 2019, 71 per percent of them can be repaid by 75 years of age, according to the recent data from Moneyfacts.co.uk.
This means, paying mortgages well into one’s retirement years is something that is becoming increasingly common, according to Darren Cook. “It is imperative that these borrowers consider their options and attempt to make provisions if their personal circumstances change”, he claimed.