Daily Telegraph mortgage article

ended 11. August 2021

A journalist @ The Telegraph is writing an article on data that shows a huge jump in the number of 35+ year mortgages taken out in March 2021, which the company has partly attributed to FTBs having to lock into longer mortgages in a bid to make monthly payments more affordable after house price rises. Is this something you're seeing? Go go go…
 

13 responses from the Newspage community

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"Higher house prices mean borrowers can either pay more every month or spread the payments out over a longer time period. Increasingly, they are choosing the latter. We are seeing a lot more of longer term mortgages, which reflects the new reality of homeownership."
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"Many first-time buyers need to take longer mortgage terms simply to borrow enough money to purchase the property they want. "If you spread the term over 35 years rather than the more traditional 25 years, the repayments are lower. The term extension means the banks and building societies have access to more generous affordability calculations and can provide larger loans. "If you do take a longer-term mortgage, when you come to remortgage it is worth reducing it so that you don't pay more interest than necessary."
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"A tasty combination of high house prices and people working for longer has resulted in more 35-40 year mortgage terms. Borrowers wanting to keep their payments down and lenders willing to accept that most employed people will now be slugging away until age 70 opens the door to ultra-long mortgages. That said, just because a lender is prepared to lend you money for 35 years doesn't mean it is a great idea. Low mortgage payments may sound great right now but having no choice but to work until you're old and grey to repay your mortgage may not be so fun."
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"There is a definite correlation between rising house prices and longer mortgage terms and, for many, a 25-year mortgage is simply not affordable. "While 'super-term' mortgages are more commonplace than they used to be, they are not without downsides. "Increased interest over the life of the mortgage and a reduction in the speed to which equity can be accrued should not be underestimated. "First-time buyers may choose to take a lengthy term only to reduce this a few years later once incomes have increased and they have got used to home ownership. This is a valid approach but you have to have the discipline to shorten the term when you can."
"The astronomical rise in house prices in proportion to salary increases over the past 10 years has seen many first-time and even next-time buyers move away from the previously standard 25-year term. "Too many first-time buyers and next-time home movers are having to stretch themselves to the max to even be able to remotely consider purchasing a property in the current climate. This has meant a 25-year term is rarely affordable with many buyers unwilling to over-commit on their payments after such a turbulent year and uncertain economic future. "Many choose to maximise the length of term they can borrow over at the beginning, with a view to reducing this down in the future when remortgaging or through regular overpayments. Having the flexibility to ensure you do not overstretch on your committed monthly payment has never been more important, although it is vital to remember even taking a mortgage term over a few extra years will cost you many thousands more in interest. Seeking the right advice from a broker remains as important as ever."
"The data may suggest this is a new phenomenon but in reality longer mortgage terms have been the new normal for a couple of years, and it is not just FTBs considering them. "As more and more people load up on consumer and property debt at a time when finances are being squeezed into fumes, borrowers are seeking longer mortgage terms in order to make the payments more affordable. "In many cases, there is nothing wrong with that and all mortgages are stress-tested to include the mortgage term requested. It is always better to have some money left at the end of the month rather than have some month left at the end of the money."
"The 35-40 year mortgage is nothing new, however the jump in more and more of these being taken out recently demonstrates how far the property market has become detached from both wage inflation and ultimately reality with the latest spike in property prices stretching people further in terms of affordability. We're seeing not just first-time buyers taking out longer loans but there's also the rise of second steppers jumping up from 20-ish years when they're trying to buy the family home. "We shouldn't however underestimate the dent to people's confidence the pandemic has had and I've certainly seen people taking out mortgages for as long as possible to keep payments at a minimum so that in the event their income falters, as happened during the pandemic, they're able to make repayments. I've had customers who want a 35-year mortgage but also want to know what the payments are at say 25 years and they then make those payments as overpayments which achieves the same effect of having a 25-year mortgage with the flexibility to reduce those overpayments in the event they have a change in circumstances. To be honest I think is not a bad thing that people are now a little more cautious as it's showed people just how vulnerable we actually are."
"We've seen an increase in clients looking to take out 35-year mortgage terms due to higher house prices. It is important to ensure that you get the right term for your monthly budget. The benefit of having a longer term is a lower monthly cost but be aware you will pay more interest overall. "We have also seen a rise in interest-only mortgages. This reduces the monthly cost but you need to have a suitable plan to repay the mortgage. Most lenders are very strict on their criteria, with most having a minimum income level of £75,000. They also limit the loan to value at 50-75%, depending on how it is structured."
"The massive increase in house prices over the previous decade has meant younger borrowers are being left with no choice but to have mortgages over a slightly longer-term compared to previous generations purely down to affordability. "The age-old process of just having a 25-year term is a thing of the past for some borrowers but this doesn't mean they have to have a mortgage until they are as old and grey as Gandalf because if they review their mortgage throughout the term and in line with any pay increases borrowers can take years off their mortgage. It is all about proper planning and taking responsibility. "Some borrowers who are taking their first steps onto the property ladder also tend to be starting their careers and therefore prefer to have a low monthly payment initially to settle in and then change it at a later date."
"The maximum term allowed with the majority of lenders is 35 years, with some allowing 40 years. Whilst I haven't seen a noticeable spike in overall terms, it is very easy to see how this could be the case with home buyers (both first time buyers and home movers) simply electing to have the maximum time allowed to give themselves the lowest possible repayments and improve the chance of a quick decision from the lender. Remember that a lot of these borrowers have been chasing the deadline for the Stamp Duty holiday. "While a low monthly payment sounds great, the interest you will pay over the full term will be much greater than if you elected to have a shorter term. "I would hope that, once they get to the point of reviewing their mortgage after a number of years in their new home, they will look to reduce the overall term when they remortgage."
"The red-hot market and record house prices have left buyers in a difficult position. Nobody wants to commit to a mortgage over 35 or 40 years taking them deep into retirement territory but to reach the heights necessary to buy, especially in the South East, it's the only option. "We recently took a client from a 13-year term to a 36-year term despite only needing a small increase in lending. The lender in question refused to accept it was affordable over the shorter term leaving the client with what could be a huge hike in interest overall if they stuck with that new term permanently. I can't stress enough to my clients the benefits of overpaying in these circumstances as the figures can be downright scary otherwise."
"It is very common for buyers to apply for the maximum term available, especially first-time buyers. For most lenders, this is 35 years but some will even go as far as 40 years. "Property prices are so high that this is often the only way to keep the monthly payments affordable. The downside of stretching the term is that you will pay more interest over the course of the mortgage."
"In short, longer term rates make mortgage payments more affordable, but increase the level of debt to be paid. "Customers tend to be tied in at a higher rate; as the mortgage balance reduces, the house price will more than likely increase, therefore creating an issue of borrowers overpaying in the long run. "Having the flexibility to make larger payments and reduce the term over time would make these mortgages more appealing."