The rise and rise of the 35-year mortgage


New research from the Halifax reveals that a quarter of first-time buyers are opting for longer mortgage terms of 35 years, rather than the more traditional 25-year term. This comes as no surprise to mortgage brokers who have seen a steady increase in the number of first-time buyers opting for longer mortgage terms in order to make monthly payments more affordable.

Some of our first-time buyer clients will choose the longest mortgage term possible. The irony is that by the time you get to your mid-40s say, the chances are the bank will be dictating a shorter term to match your state retirement age unless you can evidence income in retirement.

First-time buyers, who have never had to run a house and are used to calling their landlord in the event of the boiler breaking, should seriously think about factoring in upkeep of the property into their monthly budgets. If they keep their mortgage payment as low as possible, any spare cash can be used on other expenses, which inevitably arise as a homeowner.

While a longer mortgage term means cheaper monthly payments, you make many more of them, costing you more in the long run. One way round this is to overpay when you can. Most fixed-rate mortgages (which the majority of first-time buyers tend to opt for) allow borrowers to overpay by up to 10 per cent of the mortgage amount per year without penalty. So if you can pay overpay each month you can pay the debt down at your own pace, but are not contractually obligated to, which allows you flexibility.

For example:
Purchase price £300,000
Mortgage £150,000 on the Halifax 2-year fix at 1.49%

Over 25 Years = £599 pcm
Over 35 Years = £458 pcm

The longer term constitutes a monthly saving of £141. The purchaser has borrowed £150,000 so is allowed to overpay £15,000 in year one without incurring penalties. If they wanted to pay the full £599 (as if they were on a 25-year term) this would constitute £1,692 overpayment on year one. If, however, halfway through the year they wanted to hold some cash back for other purposes (home improvements/investments) they can simply revert to the £458 monthly payment.

Critics have suggested that taking a longer term reduces the options available to the lender if you do get into difficulty with your mortgage (because it can’t extend the term to give you longer to pay back the debt). But making overpayments creates the opportunity to take payment holidays with most products, meaning if you do run into serious trouble (loss of a job, for example) you can then stop paying your mortgage altogether for a period of time.

Jonathan Harris
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Jonathan Harris