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Should you consider a 40 year mortgage?

Why first time buyers should consider longer term mortgage products

Monday 29 April, 2019

Vishal Gulrajani and Thomas Wheatley, Mortgage Brokers in Goff’s Oak & Cheshunt, Hertfordshire review the positives and negatives of longer term mortgages.

Over 50% of new mortgages agreed on a forty year term

Most of us use mortgages in order to assist us when we purchase our homes. If mortgages didn’t exist I think it’s fair to say most of us, including myself, wouldn’t be able to purchase our homes. Now mortgages were always seen and regarded as a ‘twenty five year loan’ and in fact when I qualified as a mortgage broker and offered mortgage advice in early 2014 I thought the same, only to discover mortgages can have terms as long as forty years. Indeed the forty year mortgage is a lot more common these days. Data from Moneyfacts suggests that just over 50% of new mortgages are agreed on a forty year mortgage term.  

Longer mortgage terms can help first time buyers

Vishal Gulrajani, Mortgage Broker in Goff’s Oak & Cheshunt, Hertfordshire, said: ‘There are both positives and negatives to agreeing to a forty year mortgage term but to have the option available is definitely a bonus. It can help keep costs low at the outset when you start your career especially if you’re a young first time buyer in London, Hertfordshire and Essex. Over the last decade we have seen a significant rise in house prices and low wage growth which would have priced many individuals out of the house buying process. However lenders tried to combat this by offering longer term mortgages, like the forty year mortgages in order to help the client borrow more and keep costs low. This was especially helpful when lenders switched to affordability based lending following the mortgage market review in May 2014. The lower monthly mortgage payments that resulted from the longer term mortgage allowed clients to get maximum borrowing, compared to a twenty five year mortgage. This was especially helpful if they already had debts.

Drawbacks of a mortgage with a longer mortgage term

Vishal Gulrajani, Mortgage Broker in Goff’s Oak & Cheshunt, continued: ‘Whilst there is clearly some benefit of obtaining a longer mortgage term, one of the big drawbacks is that ultimately you will be paying back considerably more interest on your loan. Although you benefit significantly from lower monthly payments when you compare a forty year mortgage to a twenty five year mortgage, the reductions do not compensate for the extra interest you will pay over the additional fifteen years. As a result if you can afford to take a mortgage with a lower mortgage term it makes financial sense to do so because of the interest you will save in the long run.’

Thomas Wheatley, Mortgage Broker in Tottenham, North London said: ‘Overall the addition of longer mortgage terms is a huge positive especially when you consider how expensive properties are and the fact wages have not increased proportionately with the rise in house prices. One important thing to remember is if you agree to a forty year mortgage term it does not necessarily mean you will always have a forty year mortgage. You could select a forty year mortgage when you first buy a property to keep costs low while you progress in your career and then change this to a twenty or twenty five year mortgage term at your next review when your salary has improved and you have more disposable income available to cover the increased payments associated with a shorter mortgage term. 

40 Year Mortgages – In Summary

Remember if you get mortgage advice and explain to your mortgage advisor that you plan to have a longer term mortgage and then reduce the term at a later date your mortgage broker will review the mortgage market and recommend a mortgage product that is flexible and allows you to change your mortgage term in line with your life and career progression. This should enable you to benefit from the best interest rates but have a mortgage with a mortgage term appropriate to your situation. These mortgage products could be of particular interest to first time buyers. If you are buying a property for the first time or you are looking to reduce your mortgage payments by increasing your mortgage term we recommend you get mortgage advice.  Our mortgage brokers at Thomas Oliver will always give you mortgage advice that is bespoke and unique to you. If you are looking for a local mortgage broker in North London please contact us on 01707 872000. 

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