Home buyers forced into 35-year mortgages as cost of living crisis continues

The rising cost of living, increasing house prices and higher interest rates have forced house-buyers into taking out 35-year mortgages to afford their monthly repayments.

Home buyers forced into 35-year mortgages as cost of living crisis continues

The number of borrowers taking out loans with a 35-year term or longer rose to 196,182 in the first nine months of last year, up from 111,815 in 2020, according to a freedom of information request submitted by wealth manager Quilter to the Financial Conduct Authority.

Mortgage experts have indicated that the number of people requiring longer loans was rising, as borrowers have struggled with the ongoing cost-of-living crisis and mortgage affordability tests.

Adrian Anderson, of mortgage broker Anderson Harris, told The Daily Telegraph that said younger borrowers had been particularly keen to commit to 35-year mortgages, in an attempt to afford soaring house prices.

He said: “This is definitely a trend we expect to continue as the cost of living rises, banks tweak their affordability criteria and interest rates climb. Meanwhile house prices are still on the rise.

“The advantage of spreading the mortgage over a longer term is repayments put less of a strain on monthly cash flow. But borrowers must be aware that the longer the mortgage, the more interest paid over its term.”

Property values have continued to rise over the last year. Annual UK house price growth increased to 12.6% in February, from 11.2% in January, according to the March Nationwide House Price Index.

Rising interest rates have prompted many borrowers to take out mortgages now, fearing higher future rates. But experts said this could be a false economy if homeowners are forced to extend their term by ten or more years.

The overall cost of a 35-year mortgage on an average £265,312 property is £369,217, based on a 2% interest rate. However, the total cost for the same property falls to £337,421 if bought with a 25-year loan – a saving of more than £31,000. One obstacle for homeowners seeking a long-term loan is banks set a maximum age for the borrower to repay the mortgage, generally up to 75, meaning most lenders will only offer 35-year mortgages to buyers aged 40 or under.

According to Quilter, the rise in ultra-long mortgages being sold were recorded last year when the stamp duty holiday was coming to an end. In June, 35,046 loans were sold with a term of 35 years or more – a rise of over 200% on the number sold in June 2020. Similarly, sales rose 73%, year on year, to 28,112 in the final month of the stamp duty holiday in September 2021.

Charlotte Nixon, of Quilter, said in many cases borrowers would have saved tens of thousands of pounds in interest had they waited until they could afford a shorter mortgage.

She said: “Rushing to buy will not have resulted in the savings many believed they were securing, as they will now be faced with the cost of interest for the duration of a longer mortgage term.”

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