The appetite for longer-term mortgages is soaring as homebuyers look to stretch out their repayments to make them more affordable, new research shows.
Some 21% of homebuyers are searching for mortgages lasting 30 years or longer, compared to just 8% a year ago, according to the Mortgage Search Tracker from Mortgage Advice Bureau.
But the initial savings from taking out a longer-term mortgage can ultimately cost tens of thousands of pounds over the extra lifetime of the loan.
Based on today’s average rates, the cost of repaying the average loan over a 30-year period is £23,297 higher than over 25 years, even though repayments cost £83 a month less initially.
Borrowing over 35 years compared to 25 years will save £141 in monthly repayments initially but cost an extra £47,707 over the lifetime of the loan.
Brian Murphy, head of lending at Mortgage Advice Bureau, said: “Homebuyers are tearing up the rule book by searching for longer term mortgages to secure cheaper monthly repayments.
“However, in the long run this can add up to an extra outlay of thousands with the added interest that comes with borrowing for longer."
The research also showed that current homeowners are sitting on record housing equity and less likely to seek out longer terms.
The average remortgage borrower has £122,052 of housing equity, up almost £8,000 year-on-year.
This places them in a strong position to access the best remortgage deals, and potentially seek to repay over a shorter term if they maintain or increase their repayments.
Opting for a 15-year repayment term compared to 25 years can save borrowers £36,214 in total interest paid. Choosing a 20-year term saves £18,635.
Murphy said existing homeowners are looking to capitalise on the spare equity on their property to remortgage to cheaper deals. "This way they can get rid of their debt quicker and reap the benefits of smaller total repayments.”