Rise in interest rates has driven more homeowners to look at these much longer-term mortgages as a way of keeping their monthly mortgage payments affordable, according to Bowmore Financial Planning
The number of mortgages that last more than 30-years that have been sold to UK borrowers has climbed 13% in the year to end of September, from 459,296 in 2021/22 to 520,779 in 2022/23, according to Bowmore Financial Planning.
Bowmore says that rise in interest rates has driven more homeowners to look at these much longer-term mortgages as a way of keeping their monthly mortgage payments affordable.
Borrowers taking out a 25-year mortgage to buy the UK’s average property (worth £288,000) at the current average interest rate will pay £1,675.18 per month.
Borrowers taking out a 40-year mortgage with the same deposit amount will pay £1,430.56 per month.
Nevertheless, whilst monthly payments are lower, longer-term borrowers will pay 29% more during the term of their mortgage. 40-year mortgage holders will pay a total of £572,000 compared to £442,000 for 25-year mortgage holders.
The figures on the sales of these longer-term mortgages, supplied by the FCA show that the number of 40-year mortgage sales has risen 29%, from 1,533 in 2021/22 to 1,980 in 2022/23.
Bowmore Asset Management director Charles Incledon comments: The number of people opting for longer term mortgages has caused concern at the FCA.
The concern is that some borrowers have not fully understood the potential impact 30-40-year mortgages could have on their long-term finances. There will be quite an additional amount in interest, he said.
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, Incledon added.
He says: 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.