The government’s stamp duty holiday triggered a surge in the number of mortgages with a term of 35+ years, which will leave many people vulnerable to higher costs over the long-term.

According to data obtained by wealth manager Quilter, the first phasing out of the tax break in June 2021 saw 35,046 mortgages sold with terms of over 35 years. 

This was when the threshold for buyers to bypass the tax on a property purchase dropped from £500,000 to £250,000, helping homebuyers save up to £15,000.

Annually, the number of 35-year term mortgages sold was a 209% rise on the same period in June 2020 where 11,320 mortgages with extended terms were issued. 

In September 2021, when the threshold dropped to its usual level of £125,000 (saving borrowers up to £2,500), 28,112 mortgages with a term of 35 years or more were sold. This was a 73% increase on September 2020. 

Meanwhile the average price of a residential property surged over the year meaning affordability would have been stretched for borrowers. 

By the final phase of the stamp duty holiday in September, the average property price had reached £287,895, an 11.8% increase on the year before. 

Quilter said despite the savings on stamp duty, which could have been a maximum of £15,000 in the first stage and £2,500 in the second, entering a mortgage term of 35 or more years would have been costly due to the amount of interest which needed to be paid. 

The firm calculated that where the average property price was £265,668 in June 2021, a buyer would have saved £3,283 on stamp duty. However, a 35-year mortgage with a 15% deposit and 2% interest rate would cost £88,438 in interest costs over the period. 

If a 25-year term mortgage was taken, the interest costs would have been £66,914 lower. 

In September, when the average property price reached £287,895 and the stamp duty saving was £2,499, paying the interest of a 35-year term mortgage would have incurred costs of £95,837 over the period. 

On a 25-year term, a buyer could save £72,512 in interest payments. 

‘Longer mortgage an afterthought’

Charlotte Nixon, spokesperson at Quilter, said: “The lure of the stamp duty holiday was strong, particularly as it came at a time when many people had built up extra savings due to the lockdown. While many jumped at the opportunity to save on stamp duty, they may well now be stuck in long mortgages that will cost them considerably more in the long term.  

“To take advantage of this saving many had to opt for a longer mortgage term to ensure it was affordable. However, had they held off until they could afford a standard length mortgage, they could well have saved themselves a lot more money in the long run than just the stamp duty savings.”  

She added: “The overall cost of a 35+ year mortgage may well have been an afterthought for those looking to take advantage of the scheme, particularly when rushing to meet the withdrawal deadlines.  

“However, rushing to buy will not have resulted in the savings many believed they were securing, as they will now be faced with the cost of interest for the duration of a longer mortgage term.”