Hundreds of thousands of homeowners have taken out mortgages in the last three years that they will still be paying off into retirement. Our in-house mortgage expert Brian Sandiford weighs in on the trend in ultra-long mortgages…
Recent Bank of England figures have revealed a surge in mortgage terms extending beyond state pension age, particularly in new home loans made to the under-30s.
In late 2021, around 31% of new mortgages had an end date beyond state pension age, the data shows. Two years later, the number of new mortgages with a post-retirement end date rose to 42%, indicating more homeowners were opting for longer-term loans.1
With mortgage rates on a high, a mortgage term of 35 to 40 years can appear to be the “only option”, particularly for first time buyers. Is this the new normal, or just a trend which will eventually wane? We asked our mortgage adviser Brian Sandiford for his take…
Brian says:
“Sadly, longer term mortgages up to 40 years are now becoming much more common. In part this is attributable to higher mortgage rates, but also driving this trend is the fact that wage rises are largely not keeping pace with ever increasing house prices.
Additionally, the high cost of rented housing means would-be first-time buyers take much longer to save up a suitable deposit.
'If we look back to the year 2000, a 25-year mortgage was standard, but mortgage companies are stretching out the borrowing period to make home buying practical for first-time buyers.'
Whether or not ultra-mortgages will remain a lasting trend will depend greatly on the extent to which mortgage rates drop and settle in the months and years to come.
For those considering buying and hesitating, my advice is to get on the housing ladder as soon as you can – even if this means taking on a 40-year mortgage. Not buying could make things worse in the long run.
That’s because when rates reduce, house prices are certain to go up. Buying over 40 years isn’t as awful as the prospect of renting to retirement and beyond. For most, being at the mercy of the supply and demand on the UK housing market on a state pension could become a terrible prospect with endless sleepless nights.
My advice to first-time buyers is to make that move to ownership as soon as possible. Start with a modest property, try to save alongside the 40-year mortgage and make use of as much of the lender’s 10% annual overpayment facility each year.
Once a decent emergency savings fund is in place, any extra can be used to chip away at the mortgage balance and bring these mortgage terms down. It pays to remember that starting with a 40-year term to age 70 does not mean the terms can’t be adjusted in the future.
Younger generations – ‘Zennials’ as I’ve heard them referred to – stand to gain significant property wealth (but not for some time). Experts estimate that around £2.5 trillion held in property by previous generations will be passed to them after death. So many borrowers may one day receive inherited lump sum which enables them to pay off a large portion of the mortgage, again reducing the term.2
While using a pension pot to pay off a mortgage is also possible, I believe this muddies the waters and it is more advisable to keep debt separate from investments. After all, the future is hard to predict but a repayment mortgage is more structured and easier to understand and keep on top of.
What’s most important is taking the initiative to know your options fully and, if this course looks feasible and in line with your attitude to risk, make your home purchase without delay.
Speaking with a trusted mortgage adviser or financial adviser is a great place to start.”
At the Financial Options Group, we offer expert advice that can help you to turn your property goals into reality. Simply contact us on 0161 764 9944 to find out more.
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With more than 20 years’ experience in the financial services industry, Brian is a specialist in protection and mortgage advice.
Brian is committed to helping first-time buyers to find suitable mortgages – and helping those who already have a mortgage save more money.
He has a passion for Buy to Let investment and enjoys working with clients to build their portfolios in line with their objectives.
Brian does not provide advice on pensions or investments.
Your home may be repossessed if you do not keep up repayments on your mortgage. The Financial Conduct Authority do not regulate some buy-to-let and commercial mortgages.
Approver Quilter Financial Services Limited & Quilter Mortgage Planning Limited 25.7.24
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