Almost a fifth of first-time buyers are getting on the property ladder with mortgages with terms of 35 years or more, latest figures show.
According to data from trade association UK Finance, take-up of so-called marathon mortgages by first-time buyers has risen from 9% in March 2022 to 19% at the end of the latest first quarter – the highest proportion since records began in 2005.
The growing trend “will leave hundreds of thousands of borrowers paying off loans well into their 60s”, said This is Money. But as the cost-of-living crisis bites and wages fail to keep up with house price growth, “many first-time buyers do not stand a chance of buying their first home with a traditional 25-year mortgage term”.
What is a mortgage term?
The mortgage term is the lifespan of a loan – how long it will take to pay off the entire mortgage.
The longer the mortgage term, the more spread out the mortgage repayments will be and the lower the monthly repayments. But “you will be making interest repayments for longer which can therefore make the whole loan more expensive”, said The Times Money Mentor.
Why are longer-term loans becoming more popular?
Mortgage terms have been getting longer for more than 15 years, said Debt Camel, but the recent “sudden spike” was prompted by the jump in mortgage rates. Lenders’ affordability checks may deem the monthly payments on a 30-year mortgage to be too high but conclude that “a 35-year mortgage is possible”.
With mortgage rates climbing rapidly over the past 18 months,“taking out a mortgage over 35 and even 40 years has become the only way to make buying a home affordable for many buyers”, said Forbes Advisor.
Should buyers take out ‘marathon mortgages’?
Opting for a longer term that pushes down monthly payments can provide some welcome breathing space to borrowers. “However, that comes with a cost, as it substantially increases the total interest over the life of the loan,” David Hollingworth of mortgage broker London & Country told the Daily Mail.
According to Forbes Advisor, a first-time buyer taking out a £300,000 repayment mortgage over 25 years at an interest rate of 5% would pay back £226,321 in interest over the term. “But if the same borrower took the loan over 35 years they would pay back £336,198 in interest – £100,000 more,” said the site.
A longer mortgage term also means that a homeowner will be repaying their loan for a larger proportion of their life. And, if rates continue to rise, “it could cost them more to boot”, warned the i news site’s housing correspondent Vicky Spratt.
The rise of longer-term mortgages could also create a “ticking debt timebomb” for younger homeowners who will be repaying their mortgages later in life and, perhaps, even into retirement, she added.
Property expert Phil Spencer advises buyers who need to take out a 35-year mortgage to try to make overpayments where possible. “You might be able to afford to pay more each month as you work your way up the career ladder and earn more,” he said in an article for Move iQ. Or “you may receive an inheritance or bonus which would enable you to pay off a lump sum on your mortgage”, although “this could be subject to early repayment charges depending on the deal you take out”.
Not everyone will be able to get a longer-term loan, since many lenders have maximum age limits for the end of the mortgage term.
But for those who can, “it makes sense for borrowers to try and peg back their term as their circumstances change”, Hollingworth told the Mail. “That could help save tens of thousands in interest over the longer run.”
Marc Shoffman is an award-winning freelance journalist, specialising in business, property and personal finance. He has a master’s degree in financial journalism from City University and has previously written for FTAdviser, ThisIsMoney, The Mail on Sunday and MoneyWeek.