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Sam covers personal finance topics, from the best savings rates to the reasons mortgage lenders say no. He enjoys crunching the numbers to help consumers get ahead.
First-time buyers are taking out mortgages lasting more than 30 years on average, according to the latest UK Finance figures.
Spreading a mortgage over a longer period can make monthly repayments more affordable, which is particularly attractive while borrowing costs remain relatively high.
But longer mortgage terms can significantly increase the amount of interest you pay and leave you building equity more slowly.
Here, Which? explains how extending your mortgage term affects your repayments, and the key trade-offs to consider before choosing between a 35 or 40-year mortgage.
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Major lenders such as Barclays, HSBC, Nationwide Building Society and Santander have reduced fixed mortgage rates in June. Despite this, mortgages remain more expensive than at the start of the year.
In February, the lowest fixed rates were 3.5%. Now, the best deals are around 4.3% and these are reserved for borrowers with at least 40% equity in their homes. For first-time buyers with a 10% deposit, the best fixed rates are closer to 4.7%.
Tracker mortgages, which usually track the Bank of England base rate, currently offer borrowers the lowest rates, but even these are only marginally below 4%.
Experts expect mortgage rates to continue falling, but only gradually. Most forecasts suggest the Bank of England base rate will remain relatively stable for the rest of the year, limiting the extent to which lenders can cut rates.
As a result, many borrowers are still facing comparatively high borrowing costs. Choosing a longer mortgage term is one way to reduce monthly repayments and improve affordability when buying a home or moving up the property ladder.
The longer your mortgage term, the lower your monthly repayments will be.
The scenario assumes you're buying a home for £300,000 with a 10% deposit, and are taking out a five-year fixed-rate mortgage at 5%.
In this example, the monthly repayments on a 40-year mortgage would be £147 less than a 30-year term, and £61 less than a 35-year term.
| Mortgage term | Monthly repayment during the first five years |
|---|---|
| 20 years | £1,781.88 |
| 25 years | £1,578.39 |
| 30 years | £1,449.42 |
| 35 years | £1,362.66 |
| 40 years | £1,301.93 |
Longer mortgage terms may mean lower monthly repayments, but over the course of the loan it will cost you significantly more.
For example, if you assume an interest rate of 5% for the entire term, a 40-year mortgage would cost £103,000 more than a 25-year term. The difference between a 25 and 30-year term is almost £50,000.
This is only an illustration. In practice, your mortgage rate will change over time as you remortgage and move on to different deals.
The example also assumes a rate of 5% throughout the term. While that reflects current market conditions, mortgage rates could be lower at points during the next few decades.
Another risk to take into account before choosing a long mortgage term is the threat of negative equity.
Negative equity is when you owe more on the property than what it's worth (due to the property value going down). Naturally, buyers choosing low deposit deals such as 2% or 5% deposit mortgages are most at threat.
The reason why choosing a longer mortgage term increases the danger of negative equity is that you'll be paying off very little of the actual loan in the first few years, with the majority of your payments going towards interest.
This means that if house prices fall, you could be vulnerable to negative equity. It can also make it harder for you to make the second step and move up the property ladder.
For some first-time buyers, an extended mortgage term of 35 or 40 years may be the difference between renting and buying. If you do take out a marathon mortgage, it doesn't mean you can't amend the term length.
As you build up equity in the property, you'll be able to remortgage at a lower loan-to-value. This will open you up to better mortgage rates and, potentially, the opportunity to reduce your term.
Another way to reduce a long mortgage term is to make overpayments. Lenders will typically allow borrowers to overpay up to 10% of your balance per year, with no fee.
If you are expecting to considerably overpay your mortgage, make sure to check at what point charges kick in, as they can potentially run into thousands of pounds.
Which? is here to help, whether you're just doing some initial research or have already started viewing properties.
Our guides on the main types of mortgages and how much deposit you'll need can help you to get your head around the basics of home loans.
If you are at the stage of looking for a mortgage deal, see our best mortgage rates page, which is updated daily with the latest data.
Also make sure to check out who comes top in our table of the best mortgage lenders before choosing a deal. We have lender review pages for more than 20 lenders, with feedback from real customers.
