First-time house buyers choosing 35-year mortgages as a quick fix for cashflow problems
Figures from L&C Mortgages show the proportion of people taking out 31 to 35-year deals has doubled in the last decade. The broker warns longer term payments leave customers with a bigger overall bill
FIRST-time buyers are increasing the time they pay off their mortgages to solve short-term cashflow problems.
Figures from broker L&C Mortgages have shown the proportion of new buyers taking out 31 to 35-year mortgages instead of the tradition 25 years, has doubled in the last decade.
This means young people looking to take their first step on the property ladder will have lower monthly payments but a bigger overall bill owing to the extra interest incurred that can run into tens of thousands of pounds.
According to the L&C figures drawn from its customer data, there were 59 per cent of first-time buyers who had mortgage terms of 21 to 25 years – that has dropped to 39 per cent this year.
And in contrast, mortgage terms of 31 to 35 years have been chosen by 22 per cent of first-time buyers this year, compared with 11 per cent in 2007.
The total cost of a £150,000 mortgage with an interest rate of 2.5 per cent would be more than £23,000 higher by choosing a 35-year mortgage term rather than a 25-year term.
The gain for the borrower would be monthly repayments of £536, rather than £673.
David Hollingworth, of L&C said that many “needed some slack in the monthly budget” and that borrows should regularly review their deals, adding “if you keep them shorter, it will save you money in the long run”.