According to new research, more first-time buyers are settling for 40-year mortgage deals to help them afford their first home.
The research claims that, in total, one in five borrowers are opting for mortgage deals that spread the cost over 30 years or more. This is compared to just one in 12 last year!
Rising house prices to blame
With house prices rising across much of the UK, but particularly in London and the South East, first-time buyers may be finding it more difficult to get onto the first step of the property ladder. As house prices rise, borrowers are stretching themselves to borrow as much as they can, and they are being forced to pay back the mortgage over a longer time frame than the traditional 25 years – just to try and keep the cost down.
In fact, the proportion of mortgage borrowers deciding on deals that last over 25 years has doubled in the past five years, according to the Council of Mortgage Lenders. They now account for a third of all mortgage lending in the UK.
For first-time buyers for whom house prices are a stretch, a longer-term mortgage offers relief month-by-month due to lower payments. However, this means they will end up paying a lot more in interest over the duration of the term. For example, according to the Guardian, an average £150,000 mortgage can cost £711 per month on a traditional 25-year mortgage – but the figure is reduced to just £537 per month when opting for a 40-year deal. On the other hand, the interest paid over this term skyrockets from £63,000 to a huge £108,000. That’s £45,000 extra paid out in interest.
Are you struggling to afford a deposit?
If you’re struggling to afford a deposit for your first home, you might be weighing up your options. The government’s Help to Buy scheme could help you to afford your first home with a deposit as low as 5%. The scheme is available to first-time buyers looking to take their first step onto the property ladder. There are a few different ways you can apply for Help to Buy, and they depend on your individual circumstances. You can find out more about the scheme in one of our previous blog posts here.
Disclaimer: All information and links are correct at the time of publishing.