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Figures from mortgage broker L&C found that among its customers, the percentage of first-time buyers opting for 35-year mortgages has doubled in a decade from 11 per cent to 22 per cent.
It highlighted that by stretching a £150,000 loan at 2.5 per cent over 35 years rather than 25 years, buyers would face monthly repayments of £536 rather than £673. However, it added that the additional interest would make the total cost of repayments £23,000 higher overall.
Sarah Coles, Personal Finance Analyst, Hargreaves Lansdown:
“The trend is perfectly understandable, given the fact the average property price paid by a first-time buyer reached a record high of £207,693. First-time buyers are facing stagnant wages, rising living costs, and demanding affordability tests from lenders: and extending the term of the loan is one possible solution.”
“The problem is that this comes at a cost. Not only will you pay interest for longer, and face a higher overall cost, but you will also be paying a mortgage far later in life. Given that the average first-time buyer is 30, they could be paying a mortgage to the age of 65.”
“Traditionally the gap between paying the mortgage off and retirement was seen as an opportunity for people to make a significant difference to their pension contributions, and boost their pension income. Now that gap is being squeezed, people in their 30s face the prospect of far lower retirement incomes, or working even later in life to make up the shortfall. Anyone taking a longer loan, therefore, needs to bear the long-term consequences in mind, and start saving as much as they can afford for retirement, as soon as they can afford it.”