Recent research indicates that more first time buyers are taking on mortgages over longer terms, for 35 or even 40 years. A leading mortgage broker has warned
that this will cost borrowers tens of thousands of pounds extra in interest costs.
Longer term mortgages have become increasingly popular, especially as the cost of property continues to rise. Although the traditional term for a mortgage is 25 years, more first time buyers are borrowing over a longer term so that they can afford a better property. However, many of those who take on loans over 40 years may find that they are still paying for a mortgage when they are in their seventies.
A leading mortgage broker in the UK, David Hollingworth of London and Country Mortgages, warns that the cost of interest on long term mortgages can rocket, as the amount is spread over such a long period. Around 60% of buyers borrow over a longer term, with 30 years being the most common, but with more opting for 35 and 40 year terms so they can buy the home they want. As buyers take longer to save for a deposit, they often want a home which is big enough to stay in for the longer term.
However, experts warn that although monthly repayments will be lower, the amount of interest is far higher and there is also the risk of interest rates going up, which could cause financial problems in future years. Mortgage advisers study for their CeMAP so that they can understand the mortgage market and offer advice to buyers.