More and more people are taking out mortgages with long loan terms, particularly those buying their first home.
The Figures
According to TSB, the average mortgage term for first-time buyers is increasing year-on-year, with an increase to 32 years in 2023 from 30 years in 2021.
The fastest growing group of people taking out mortgages which stretch into retirement are those aged under 40, many of whom are first-time buyers. This is according to Sir Steve Webb, former pensions minister and LCP partner, who gained information from the Bank of England under a Freedom of Information request.
In fact, the Equifax Financial Health Report 2024 found that mortgages with loan terms in excess of 35 years now account for 10% of the market!
Why is this Trend Happening?
Extending your mortgage term can make elevated mortgage rates more affordable on a monthly basis.
As many people are facing increased financial pressures, they are opting for longer-term mortgages when buying a home, so that they have more money left over after mortgage payments to help cover rising costs of bills, car insurance, goods and services, and so on.
Repercussions of a Longer Mortgage Term
The longer your mortgage term, the older you will be when you make your final repayment. Mortgage providers tend to have an age cap of 65-70 of when this last repayment will be, but some will cap at 75 or even 80.
This means that you can extend your mortgage for a longer period, but you should also bear in mind that you are less likely to be working at that age. Therefore, you will likely be bringing in less money every month to help cover your mortgage payments, which may leave you using your retirement savings to pay for your home.
“The challenge of getting on the housing ladder is forcing large numbers of young home buyers to gamble with their retirement prospects by taking on ultra-long mortgages. We already know that millions of people are not saving enough for their retirement and if some of that limited retirement saving has to be used to clear a mortgage balance at retirement they will be at even greater risk of poverty in old age” – Sir Steve Webb
While extending your mortgage can decrease your monthly payments, it means you will be paying it for longer and will end up paying more in interest over time. This means that although you will be paying less each month, your overall mortgage cost will be higher.