A quarter of homeowners under the age of 30 are now dragging out their mortgage term for 35 years or more – adding up to 30 per cent to their total bill.
The combination of high house prices, high mortgage rates and the increased cost of living mean many younger homeowners have resorted to extending the length of their mortgage beyond the standard 25 years in order to afford the repayments.
One quarter (25 per cent) of home buyers under 30 have a mortgage term of 35 or more years, according to credit checking firm Experian, up 10 per cent from the same period in 2020.
But the move away from standard 20-30 year mortgage terms comes at a cost, as homeowners pay more overall – and face the prospect of still repaying a home loan into their seventies.
Long haul: An extended mortgage term can make monthly payments cheaper, but borrowers pay more overall as interest has more time to rack up
Experian head of consumer affairs James Jones said: ‘Our data suggests that people under 30 are looking to secure longer mortgage repayment terms to help keep monthly repayments down on their homes, and this could also be affecting property buying among house hunters.
‘With high interest rates increasing the pressure on borrowers, young people may feel like they have been “locked in,” so we’re encouraging people to consider ways that they might be able to secure better deals on their mortgage terms.’
Why are homeowners extending their mortgages?
To lower monthly mortgage payments. By spreading the cost of a home loan out over a longer period, you pay less per month, but more overall.
This means many will be paying off home loans well into their seventies in exchange for lower monthly mortgage bills now.
For example, the average house is now worth £257,808, according to building society Nationwide, with the best five-year fixed mortgage rates hovering at around 5 per cent.
Past the peak? Fixed mortgage rates are falling after a barrage of rate hikes in recent months
Mortgage rates have been rising in response to steady hikes to Bank of England base rate, which last month was held at 5.25 per cent.
Someone buying the average-priced house with a 10 per cent deposit and a 5 per cent mortgage would pay £1,356.41 a month in home loan repayments over 25 years.
But dragging the term out to 30 years would mean these payments would drop to £1,245.58 a month, or to £1,171.02 over 35 years.
Why do I pay more with a longer mortgage term?
Because as home loan terms get longer, consumers pay back more interest.
That interest can rack up how much you owe your bank by a third.
Taking the above example, a homeowner with a 25-year term would repay £407,070. But that rises to £448,591 over 30 years and £492,052 over 35.
For a 40-year home loan, repayments rise to £537,302 – 31 per cent higher than over a 25-year term.
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