30 and 40 Year Mortgages Now Common

Published / Last Updated on 27/04/2023

UK Finance, a trade body representing 300 banking, credit and payment services firms, has reported that data from members has highlighted ever growing numbers of 35 year plus mortgages.  This is due to:

  • House prices being 20-30% higher than they were pre-covid 19.
  • Interest rates have increased dramatically in the last year and another 0.5% pa rate increase is likely in May.
  • Cost of living inflation meaning less money in our pockets.

Comment

The combination of the above 3 has forced first-time buyers in particular to look to longer term mortgages to be able to afford the mortgage payments. By way of example:

  • 5% pa, 5 year fixed  rate, 7% pa SVR thereafter, 25-year term, £150,000 borrowed, capital and repayments of £876.89 per month.
  • 5% pa, 5 year fixed  rate, 7% pa SVR thereafter, 35-year term, £150,000 borrowed, capital and repayments of £757.03 per month.
  • 5% pa, 5 year fixed  rate, 7% pa SVR thereafter, 40-year term, £150,000 borrowed, capital and repayments of £723.29 per month.

More importantly, the amount of additional interest paid over the mortgage term, makes it s must do to get your mortgage term down as soon as possible by remortgaging when/if rates fall or making overpayments to reduce the capital owed.

  • 5% pa, 5 year fixed  rate, 7% pa SVR thereafter, 25-year term, £150,000 borrowed, total interest paid over the term £149,847.16.
  • 5% pa, 5 year fixed  rate, 7% pa SVR thereafter, 35-year term, £150,000 borrowed total interest paid over the term £233,179.86.
  • 5% pa, 5 year fixed  rate, 7% pa SVR thereafter, 40-year term, £150,000 borrowed total interest paid over the term £277,940.97.

£128,093.81 more interest paid on a 40-year term compared to a 25-year term.  We urge all borrowers needing a 40-year term to make overpayments all the time.  Yes, you may be saving £153.60 pm initially but a staggeringly larger payment of interest warrants making cutbacks elsewhere to allow you to overpay when you can.

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