Forty-year mortgages tempt first-time buyers on to the property ladder despite high costs

Halifax and Nationwide are two of the biggest names to make the extreme long-term offers

The number of first-time buyers prepared to pay double the cost of their home to get on the property ladder is soaring as more lenders begin to offer 35 and 40-year mortgages.

A combination of lower monthly payments and the chance to gain a foothold on the property ladder are proving too attractive a proposition to turn down despite the extra long-term costs buyers face.

Many are expecting to lower the length of their mortgage in the years ahead with the expectation that rising salaries will allow them to do so. Home-movers and those remortgaging are also taking up longer-term deals.

Anyone taking out a £200,000 mortgage spread over 35 years with an initial 4 per cent interest rate and £995 fee will end up paying back £373,781 at £890 a month. Over an extra five years, the total repayment cost exceeds £403,000 for only £50 a month less.

Halifax and Nationwide are two of the biggest names to offer 40-year mortgages, and figures from the Council of Mortgage Lenders show extreme long-term offers are being snapped up. Its latest figures for the second quarter of this year show that of the almost 80,000 first-time buyers, 22,600 (28.6 per cent) took out mortgages with longer than 30-year terms – an almost 10 per cent jump since 2010.

The number of "home-movers" doing the same more than doubled from 5 to 12 per cent. And 4,000 people remortgaged their property with a mortgage of more than 30 years – a fivefold rise since 2010.

UK house prices are expected to rise by about 10 per cent this year and by more than 25 per cent by 2018, according to a report published last week by Savills estate agents. Although the firm said it expected the London property market to flatline in 2016, young professionals are grabbing the chance of a mortgage while they can.

Linda Isted of the Debt Advice Foundation charity warned that it was impossible to predict anyone's financial situation in 35 years' time. "We would always caution people to think very carefully about any kind of credit which is due to run past their retirement age – or even to run into a time of their life when they might be thinking about perhaps cutting back on working hours," she said.

"We are increasingly hearing heartbreaking stories from older people who still face significant debts when they reach retirement age, and have no prospect of additional income to settle them. Whatever length of mortgage you are considering, the key is to look at your overall budget and to make sure that you really can afford the repayments."

Last month, Bank of England deputy governor Andrew Bailey warned that longer-term mortgages could create a problem for borrowers as a steady rise in wages is never guaranteed. "We have to watch this very carefully, because if mortgages extend beyond the point at which people's income falls off, then we have a long-term problem," he said.

Dominik Lipnick, director of Your Mortgage Decisions, said last month that it was clear there was a major shift in the mortgage market.

"Without a doubt, 30- or 35-year mortgages are becoming the new 20- and 25-year terms," he said.

"People will borrow for longer as house prices continue to rocket – which they will until the supply-side issues are seen to.

"The market certainly needs to reflect the fact that people are working for longer and living longer. Policymakers need to help the situation by actually building the extra houses they so often talk about."

Case study: 'The aim is not to keep it at 40 years for the whole term'

Lydia Hamilton, 23, took out a 40-year mortgage with her sister and the pair are about to exchange contracts on a £249,950, two-bed flat in Crystal Palace, south London.

Although they had a 45 per cent deposit, Ms Hamilton said the very long-term mortgage was the most attractive deal given their earnings as it enabled them to have monthly mortgage payments of £490. Similar properties in the area are available for rent from £1,200 a month.

Ms Hamilton said: "We've only just graduated so we decided that a 40-year term was the best one for us as it keeps the monthly payments relatively low and it gets us on the property ladder.

"The aim is not keep it at 40 years for the whole term. As our wages hopefully increase then we'll start paying off more and bringing down the length of the term."

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...

    Day In a Page

    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
    Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

    The Arab Spring reversed

    Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
    King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

    Academic claims King Arthur was real - and reveals where he lived

    Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
    Who is Oliver Bonas and how has he captured middle-class hearts?

    Who is Oliver Bonas?

    It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
    Earth has 'lost more than half its trees' since humans first started cutting them down

    Axe-wielding Man fells half the world’s trees – leaving us just 422 each

    However, the number of trees may be eight times higher than previously thought
    60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

    60 years of Scalextric

    Model cars are now stuffed with as much tech as real ones
    Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

    Why are we addicted to theme parks?

    Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
    Tourism in Iran: The country will soon be opening up again after years of isolation

    Iran is opening up again to tourists

    After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
    10 best PS4 games

    10 best PS4 games

    Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
    Transfer window: Ten things we learnt

    Ten things we learnt from the transfer window

    Record-breaking spending shows FFP restraint no longer applies
    Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

    ‘Can we really just turn away?’

    Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
    Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

    Nine of Syria and Iraq's 10 world heritage sites are in danger...

    ... and not just because of Isis vandalism
    Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

    Girl on a Plane

    An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent