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35-year mortgages double in a decade

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12/10/2017
The percentage of first-time buyers opting for 35-year mortgages to keep repayments low has doubled in a decade – from 11% to 22%. The average term is now a little over 27 years.

David Hollingworth, associate director of broker L&C Mortgages, said the lack of available interest-only options was driving first-time buyers to extend the term of their loans. Interest-only mortgages are usually only available to those with a high deposit and/or a very high salary.

A 35-year mortgage can cost considerably more over the longer term. L&C said that by stretching a £150,000 loan at 2.5% over 35 years rather than 25 years, monthly repayments drop to £536 from £673. However, the total repayment is £23,000 higher overall.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “The trend is perfectly understandable, given the fact the average property price paid by a first-time buyer reached a record high of £207,693. First-time buyers are facing stagnant wages, rising living costs, and demanding affordability tests from lenders: and extending the term of the loan is one possible solution.

“The problem is that this comes at a cost. Not only will you pay interest for longer, and face a higher overall cost, but you will also be paying a mortgage far later in life. Given that the average first-time buyer is 30, they could be paying a mortgage to the age of 65.

“Traditionally the gap between paying the mortgage off and retirement was seen as an opportunity for people to make a significant difference to their pension contributions, and boost their pension income. Now that gap is being squeezed, people in their 30s face the prospect of far lower retirement incomes, or working even later in life to make up the shortfall.”

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