Long-Term Mortgages: Reasons Why People Are Choosing This

For many years, 25-year mortgages have been the typical mortgage term. However, more and more first-time buyers, and even some existing homeowners, are opting for long-term mortgages, or as they are sometimes called, marathon mortgages. In this piece, we explore why more people choose long-term mortgages in their home-buying journey.

What is considered a long-term mortgage?

Marathon mortgages typically last up to a maximum of 40 years. Although 25-year mortgages have been the go-to mortgage term for many first-time buyers, research by UK Finance found that the average mortgage term for first-time buyers in 2022 (a relatively stable year) was 30 years. This shows that there are more people opting for long-term mortgages than in previous decades.

1. Affordability

The longer your mortgage term, the less money you will pay monthly. In the cost of living crisis, this is an appealing option for many to help better manage other bills and finances outside of having a mortgage.

Let’s illustrate this with an example. If someone takes out a £300,000 repayment mortgage at a rate of 4.5% on a 25-year mortgage, they could expect to pay £1667 monthly.

However, if they opt for a longer term of 35 years, this interest total figure falls to £1419 monthly. Therefore, longer-term mortgages are more affordable when you have other financial pressures simultaneously.

Some people may also find that the higher cost of borrowing on shorter-term mortgages impacts their affordability. Hiking property prices and mortgage rates paired with a lack of available property in the UK may mean that a longer-term mortgage is a more feasible option for them.

2. Banks have made it easier

Banks and building societies have made getting longer-term mortgages easier. This, therefore, lowers the barriers to entry for those who wish to jump on the property ladder sooner.

As the demand for longer-term mortgages increases, it’s not as uncommon to see mortgage terms of 30 or even 45 years in some cases. In 2014, just two-fifths of mortgage policies on the market allowed 40-year mortgages.

However, research by Moneyfacts shows a clear increase in the number of first-time buyers opting for longer-term mortgages. At the end of April this year, 79% of residential mortgages on sale had a maximum term of up to 40 years. This shows a sharp contrast in demand for marathon mortgages now compared to the typical 25-year mortgage term.

3. An alternative to renting

Long-term mortgages may take you longer to repay your mortgage. However, it is usually a better alternative than renting, especially in the long term, as you will still have an asset you own and can benefit from later in life.

Renting, especially in your older age, puts you in a position where you have no ownership of your property, and as you don’t own the property, you can still face potential eviction. Soaring rent prices are also contributing factors to why people are looking to get a better way to preserve their money through marathon mortgages. It creates a stronger sense of security compared to renting in the long term.

4. The mortgage term is changeable

Signing up for a longer mortgage of 40 years, for example, may seem daunting to some at first. But the good news is that should your financial situation improve when your initial mortgage terms end, you can choose to opt for a shorter mortgage term at that point.

So, longer mortgages don’t necessarily mean you have to stick to that long-term forever. There’s still scope to change the amount of years you want to repay the mortgage at points and assess your finances when one term ends, for example.

What should I be aware of if getting a long-term mortgage?

Longer-term mortgages mean that although they are affordable in the short term, you will incur higher interest rates over time.

Let’s use the same example given earlier in point one of a £300,000 mortgage debt for a 35-year mortgage term. This longer-term mortgage would mean you would have a total interest of 296,00 to repay.

However, on a 25-year-old mortgage, the interest total would reduce to £200,053. So, the higher interest amount is a key consideration when taking on a long mortgage term.

Longer mortgage terms, if stuck to, also mean you may be more likely to be still repaying your mortgage after retirement. According to Steve Webb, the former pensions minister, data from the Bank of England shows that at the end of 2023, 42% of new mortgages had terms going out beyond the state pension age. This shows there is already an increase in pensioners paying off their mortgages.

At The Homebuyers Club, we provide resources to help you be well-informed and equipped when embarking on your homebuying journey. Connect with a community of like-minded individuals on the online platform too by signing up here.