The traditional 25-year mortgage may soon be a thing of the past as many firsttime buyers are choosing loan terms of 30, 35 or even 40 years. Data from estate agents Countrywide1, shows more than one third of mortgages taken out in 2017 are unlikely to be repaid until after the borrower has turned 65. This trend means more mortgages could extend beyond the current state pension age, in some cases up to age 85.
The Financial Conduct Authority urged lenders to be more innovative in their approach to the needs of older borrowers. An increasing number of lenders are now prepared to grant mortgages for a maximum term of 40 years, softening their attitude to lending that extends well into a borrower’s retirement years, providing that they can meet the necessary affordability tests.
Getting a mortgage has become more difficult since the introduction of rules designed to “stress test” a borrower’s ability to comfortably make mortgage repayments if interest rates were to rise to at least 3% higher than those offered on their loan. By extending the term of the mortgage, borrowers can stand a better chance of getting their application accepted as their monthly repayments could be more affordable, although they will pay more interest as a result.
However, having a mortgage more than the standard 25 years could give rise to other problems. The longer the period of the borrowing, the greater the likelihood that the borrower might encounter unexpected problems like ill health. There is also the risk that long-term mortgages could leave borrowers with large debts to pay off in the run up to retirement and beyond.
Whilst longer mortgages can be an advantage in the early years, it makes good sense to regularly review your deal. That way, you can ensure that your mortgage keeps in step with your financial circumstances.
As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.
1 Countrywide, 2017