An investigation from the Mortgage Advice Bureau has found that a growing number of homebuyers are looking for mortgage terms over 30 years, in an attempt to make monthly payments more affordable.
Just over 20% of buyers looking for a mortgage during the second quarter of 2015 looked for a deal for a minimum of 30 years, a rise of 8% at the same period one year ago.
On the other hand, people looking to remortgage are more interested in shorter-term deals. 13% of people looked for a mortgage term between 15-24 years during Q2 of this year, up from 9% in 2014.
Changes in mortgage trends have seen interest in the typical mortgage term of between 25 to 29 years drop by 14% year-on-year and by 3% since the first three months of the year.
With homebuyers increasingly looking to repay their mortgage over a longer period of time, this means that the overall mortgage repayments are becoming higher during the total period of the loan. For example, given today’s typical rates, the cost of repaying a loan over a 30-year period is £23,297 greater than over 25 years, with 25% more interest due. This is despite saving £83 per month in repayments during the initial fixed-rate time frame.
In addition, the difference between lending over 35 years in comparison to 25 is much greater. Over the total lifetime of the loan, an additional £47,707 will need to be repaid.
Homebuyers looking for longer mortgage terms
Current homeowners driving up interest in repaying loans over a shorter term coincides with remortgage lenders having the greatest housing equity ever recorded. On average, equity stood at £122,052 in Q2, up by nearly £8,000 year-on-year. This puts remortgagers in a good position to take advantage of the best deals and possibly look to repay over a shorter period, of they choose to maintain or increase their current payments.
‘For those fortunate enough to own their home, it is unsurprising that they are looking to capitalise on the profit levied from record house prices by remortgaging,’ noted Brian Murphy, head of lending at the Mortgage Advice Bureau. ‘Even more so, they can get rid of their debt quicker and reap the benefits of smaller total repayments as homeowners can often access lower rates thanks to their equity gains.’
Murphy continued by saying, ‘with a base rate rise coming into play soon, homeowners who haven’t yet reviewed their existing terms should make the most of the current mortgage climate to secure the best deals.’ Concluding, he said that, ‘on the other hand, homebuyers are tearing up the rule book by searching for longer term mortgages to secure cheaper monthly repayments. However, in the long run this can add up to an extra outlay of thousands with the added interest that comes with borrowing for longer.’