Longer mortgage terms are emerging as a practical – albeit costly – solution for first-time buyers struggling with affordability, new analysis from Moneyfactscompare.co.uk shows.
Extending the mortgage term to 40 years can reduce monthly repayments by as much as £255 on a £250,000 loan, based on the current average rate of 5.05%, compared to a standard 25-year term.
This offers some relief for younger buyers facing rising house prices and high interest rates.
Borrowers opting for a longer term can still overpay when financially able, helping to shorten the repayment period and reduce overall interest.
REGULAR OVERPAYMENTS
For instance, regular overpayments of £200 per month could cut almost 13 years off a 40-year mortgage and save over £123,000 in interest.
The analysis follows data from the Financial Conduct Authority showing that 68% of first-time buyers are now taking out mortgages with terms of 30 years or more, reflecting the deepening impact of affordability pressures.
“The average deposit paid by first-time buyers last year equalled around 60% of household income.”
The Bank of England has also noted that the average deposit paid by first-time buyers last year equalled around 60% of household income.
While longer terms may ease entry into the housing market, they risk leaving borrowers exposed to higher total costs over the life of the loan, or even carrying debt into retirement.
Demand for affordable housing remains high, with buyers now watching closely for signs of progress on the government’s long-standing target to build 300,000 new homes annually.
PAYING MORE
Rachel Springall, finance expert at Moneyfactscompare.co.uk, says: “Those prioritising their homeownership plans over their pension may well choose a longer-term mortgage to more comfortably afford mortgage payments.
“However, borrowers with lengthier mortgages will make monthly repayments for longer and incur paying considerably more mortgage interest overall, so making overpayments is wise.”
