The number of mortgages with 30-year terms sold to borrowers has risen by 13 per cent 520,779 in 2023, a report has said.
According to Bowmore Financial Planning, which collated data from the Financial Conduct Authority, in the year to 30 September the number of mortgages with 30-year terms has gone from 459,296 in 2021/2022 to 520,779 in 2022/2023.
The firm said that 30-year terms would lower monthly payments as there is a longer period to repay the mortgage amount, but the total amount paid in interest payments will go up significantly.
The company added that rising interest rates lead to many taking 30-year terms or more to lower their monthly payments, and it was a measure of the Mortgage Charter introduced last year.
Bowmore Financial planning said that those taking out a 25-year mortgage on an average property worth £288,000, assuming an average interest rate, would pay £1,675.18 per month.
Those on a 40-year fixed rate mortgage with the same deposit would pay £1,430.56 per month.
However, the company said that longer-term borrowers would pay 29% more during the term of their mortgage with those on a 40-year mortgage paying £572,000 versus £442,000 for a 25-year mortgage.
FCA figures also show that the number of 40-year mortgage sales have risen by nearly a third to 1,980 in 2022/2023.
Long-term 30-year mortgages ‘a concern’
Charles Incledon, director at Bowmore Asset Management, said: “The number of people opting for longer term mortgages has caused concern at [financial watchdog] the Financial Conduct Authority (FCA).”
“The worry is that some borrowers haven’t fully understood the potential impact 30 to 40-year mortgages could have on their long-term finances. They will be quite an additional amount in interest.”
He added: “When interest rates are low, monthly mortgage payments are easier to manage for borrowers. With interest rates at their current level, 30–40-year deals maybe tempting to those struggling with the cost of living.”
“Not only will borrowers be paying much more in the long term, but they are also taking funds away from their retirements. Missing out on that money for so many years can make a measurable difference to the size of a retirement pot.”
