Growing interest in longer-term mortgages

The number of mortgages with over 30-year terms sold to UK borrowers jumped 13 per cent in the year to end of September says Bowmore Financial Planning.

The number rose from 459,296 in 2021/22 to 520,779 in 2022/23.

Bowmore says that soaring interest rates has pushed more homeowners to consider longer-term mortgages to reduce monthly payments.

Borrowers taking out a 25-year mortgage to buy a typical property worth £288,000 at the current average interest rate will pay £1,675.18 per month; those on a 40-year mortgage pay £1,430.56 per month.

However, Bowmore calculates that longer-term borrowers will pay 29 per cent more during the term of their 40 year mortgage - £572,000 compared to £442,000 for 25-year mortgage borrowers.

The figures on the sales of these longer-term mortgages, supplied by the Financial Conduct Authority show that the number of 40-year mortgage sales has increased 29%, from 1,533 in 2021/22 to 1,980 in 2022/23.

Bowmore Asset Management director Charles Incledon says: “The number of people opting for longer term mortgages has caused concern at the Financial Conduct Authority.

“The worry is that some borrowers haven’t fully understood the potential impact 30-40-year mortgages could have on their long-term finances. There will be quite an additional amount in interest.

“When interest rates are low, monthly mortgage payments are easier to manage for borrowers. With interest rates at their current level, 30–40-year deals maybe tempting to those struggling with the cost of living.

“Not only will borrowers be paying much more in the long term, but they are also taking funds away from their retirements. Missing out on that money for so many years can make a measurable difference to the size of a retirement pot.”