At one time, 25 years was always the standard length of mortgage term. However, more recently 30 and 35 year mortgage terms have become increasingly common due to escalating property values and a wish to achieve affordable monthly mortgage payments. Subsequently, we now we see lenders starting to offer 40 year mortgage terms.
The December 7th 2021 issue of the ‘Guardian’ newspaper stats that UK house prices have risen at the fastest pace for the quarter ending in November 2021 since late 2006. This has resulted in a UK average house price of £272,992; this represents an average increase of £20K in just one year. Whilst house price increases and sales might be starting to slow, probably as a result of Stamp Duty returning to its standard rate and speculation surrounding the increase in the cost of living and interest rate rises, the property value rise does demonstrate the resilience of UK property as an investment; despite the economy and global pandemic, values have continued to increase and long-term, values always go up.
Little wonder then, with the cost of property and the drive to find ‘an affordable monthly payment’ that 30 and 35 year mortgages have become the norm; and 40 years is just the natural progression of this. In fact most lenders offer mortgages over 40 years. You can always look to reduce the term in the future so we have no problem recommending a 40 year mortgage term if it helps with affordability in the short term.
One also needs to consider that, these days, its rare that people remain with their original length of mortgage term. Over the years, life and family changes and a wish to ‘move up’ and improve ones home often leads to re-mortgages where people often find themselves paying a mortgage for a similar time frame to 40 years in any event!
But how about a 40 year fixed rate deal? Kensington now offer this with an interest rate of 3.34%. This is a very different proposition. Whilst a 40 year fixed deal will certainly give you peace of mind in terms of knowing, indefinitely, how much you will be paying each month – amid speculation of Bank of England base rate increases and subsequent rate - hikes by the mortgage lenders. A 40 year -fixed deal also enables one to borrow more than a more conventional mortgage term product and this could enable first time buyers to possibly purchase within a better and more desirable location; possibly an area that, with a more conventional mortgage term, they would have been priced out of.
However, 40 years is a long commitment – particularly to one provider and product. One has to factor in the ‘get out penalties’ should you wish to swap lenders in years to come. You also need to weigh up the comfort of the stability, that such a product offers, against the lower rates achievable with a shorter fixed term product.
To find out more and for some FREE independent advice on mortgage terms and the products that are available and most relevant to your circumstances, talk to our advisors today.