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Listen now40-year mortgages on the rise: what are the risks?
Choosing a longer mortgage term could cost thousands more
The number of borrowers taking out mortgages lasting 35 years or longer has rocketed in the past 12 months, with uptake more than doubling, according to UK Finance.
The surge in longer-term mortgages means the average first-time buyer, aged 31, would still be paying off their home loan as they approach retirement age.
For cash-strapped buyers, a so-called 'marathon mortgage' can make the difference between an application getting accepted or rejected, but stretching out the costs will see you pay substantially more in the long-run.
Here, we reveal just how much extra you could end up paying by taking out a 40-year mortgage, and give tips on how to pay off your mortgage more quickly.
Marathon mortgage uptake more than doubles
Almost one in five first-time buyers are now opting for mortgage terms of longer than 35 years.
New figures from UK Finance show that 18% of first-time buyers took out an ultra long-term loan in February 2023, compared with just 8% in February 2022.
The number taking out a loan for 30 to 35 years has also grown, with the share increasing from 34% to 38%.
And it's not just first-time buyers who are playing the long game. The share of home movers taking out a mortgage term longer than 35 years has risen from 3% to 8% during the same period.
The graph below shows how the trend for marathon mortgages has changed in the past five years, according to UK Finance.
Long-term mortgages vs short-term mortgages
Historically, most mortgages had terms of around 25 years, but things have changed since the financial crash of 2009 and terms have grown in length.
It can be appealing to lower your monthly payments by taking out a longer-term loan, but will ultimately cost you much more in interest.
Our example below - based on a £180,000 repayment mortgage with an interest rate of 4% - shows the huge contrasts between longer and shorter-term mortgages.
In fact, by taking out a 40-year mortgage, the interest bill would surpass the original loan sum of £180,000:
| Mortgage term | Monthly repayment | Total interest you'll pay | Total you'll pay back |
|---|---|---|---|
| 15 years | £1,331 | £59,658 | £239,658 |
| 20 years | £1,090 | £81,783 | £261,783 |
| 25 years | £950 | £105,031 | £285,031 |
| 30 years | £859 | £129,365 | £309,365 |
| 35 years | £797 | £154,737 | £334,737 |
| 40 years | £752 | £181,098 | £361,098 |
- Find out more: our mortgage repayment calculator shows how much you'll pay depending on the mortgage term, interest rate and loan size
Why are longer-term mortgages proving popular?
Borrowers are increasingly spreading their mortgages over a longer period to make things more affordable in the short term.
High house prices have pushed the average first-time buyer deposit to £62,000, while soaring inflation and rocketing energy bills are putting a serious dent in people's finances. Given the rising cost of living, it's no surprise that home buyers want to spend as little as possible each month on their mortgage.
For some, taking out a mortgage for 35 or 40 years rather than 25 or 30 could make the difference between being able to buy a home and missing out entirely.
- Find out more: mortgage deposit calculator
The disadvantages of longer-term mortgages
While they offer cheaper monthly bills, longer mortgage terms have their downsides:
- You'll pay high interest: as you'll be paying off the loan for longer, the interest will therefore grow. This can prove to be a significant extra expense in the long run.
- You might still be paying it off when you retire: this could impact your standard of living when you're older. The average first-time buyer is now aged 31, so a 40-year mortgage term would see them paying off the home loan in their 70s.
- It takes longer to build equity: your ability to build up equity (the proportion of the property that you own) is slowed down. This is because your monthly repayments are more heavily weighted towards interest in the early years. With house prices now falling, this means an increased risk of negative equity.
Find out more: repayment mortgages explained
How to choose a mortgage term
The right mortgage term for you will depend on two things: your financial circumstances when you take out the mortgage, and your long-term plans.
If taking on a 35 or 40-year term is the only way you'll be able to get a mortgage right now, you'll have a decision to make over whether to save for longer or take the plunge.
If you do take out such a long-term deal, it can make sense to choose a loan that has no penalties for overpayments, so you have the flexibility to pay the loan back sooner if you can afford to.
As a first port of call, consider speaking to a whole-of-market mortgage broker - that is, one who can look at every available deal rather than just working with a select panel of lenders.
A good broker will be able to assess your finances and model how different terms could affect your repayments and the amount of interest you'll pay in the long run.
- Find out more: how to choose a mortgage broker
How to pay off your mortgage more quickly
Due to the cost of living crisis, overpaying your mortgage may not be an option right now. But as interest rates are so high at the moment, it can make sense to chip away at the balance and pay off the loan sooner if you can.
Most providers will allow you to overpay up to 10% of your outstanding balance each year on a monthly or ad-hoc basis.
Paying a little extra each month can have a big effect on your balance, allowing you to repay your mortgage much earlier and make big savings.
To see overpaying could help your situation, mortgage overpayment calculator.
