Rise of the 40-year mortgage as choice of home loans which last for longer grows

Home owners are finding a growing choice of mortgages which last for longer – as more than half of home loans on the market can now be stretched out to up to 40 years.

While traditionally people may have expected to be mortgage-free after 25 years, 50.89% of residential mortgage products currently available have a standard maximum mortgage term of up to 40 years, Moneyfacts.co.uk found.

This proportion has increased from just over a third (35.93%) five years ago.

The increase comes at a time when people are working for longer and may also have larger mortgage debts to pay off following house price surges in recent years.

Darren Cook, a finance expert at Moneyfacts.co.uk, said: “Historically, a standard mortgage term generally amounted to a period of 25 years, but most products are now available to be extended for a period of 40 years.”

He said that by extending their mortgage term, borrowers may be looking to reduce their monthly repayments.

However, paying off a mortgage over a longer period could also mean the overall cost of the loan is higher – and could also affect some borrowers’ retirement plans if they find themselves still paying off their mortgage in older age.

Mr Cook said, for example, someone borrowing £200,000 over 25 years may potentially end up paying £69,169 in interest at a rate of 2.5%.

But over 40 years, while they would be paying less each month with the same mortgage, the total interest could come to £116,588 – an extra £47,419 in interest charges.

Mr Cook continued: “It also appears that mortgage providers are permitting extended maximum mortgage terms of up to 40 years in conjunction with extending the maximum age that a borrower may be at the end of a mortgage.

“Our recent research shows that 71% of all residential mortgages can end when the borrower is 75 years of age or older, whereas five years ago this figure stood at 52%.”

Mr Cook said: “The longer a borrower extends their mortgage term, the older they will be when they have finally repaid their mortgage.

“An extended mortgage term may go beyond pension age, so it is imperative that these borrowers consider their options and attempt to make provisions if their personal circumstances change.”

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