There was an interesting article in the Observer last week or so. The main crux at the beginning of the article was about the fact that people getting approved for mortgages with a length of 40 years was increasing. Or more importantly had increased. And this was a real symbol of the times we live in today.
I have quoted it below:
“The growth in lenders offering mortgages of much longer terms has been swift. Just five years ago, less than 36% of mortgage products had a maximum time of 40 years, according to financial website Moneyfacts.co.uk. This has now risen to almost 51%.” Find the full article here
(you are now departing from the regulatory website, Coleshill Mortgage Services or Quilter Group are responsible for the accuracy for the linked site).
So what does this mean. Well it’s part of the issue that has been plaguing everyone with a standard job, a standard life. They cannot afford to buy property! Especially in London. The problem is it means that lenders are not getting the new customers they need to maintain growth. You know normal business stuff.
So the lenders in a desperate attempt to make mortgages much more affordable are offering mortgages at a much longer term. They used to average around 25 years. But now they are offering mortgages of up to 40 years. So what does it mean for people on these longer mortgages?
Well firstly, if you stay in the home you have bought and you pay your general mortgage payments for 40 years rather than a standard 25 years. That means if you bought it when you were 30 – The mortgage wont be paid off until you are 70!
Secondly if you want to move, how much equity will you own in the house? Take the following scenario: Your life and pay may have improved, and you had been in your original house for 12.5 years, on an average 25 year mortgage you would have been 50% through your mortgage. On a 40 year mortgage that is only around 25%. That’s a big difference. And if your house has not increased in value. Well you may struggle for that deposit when you sell. So you have to save again. And we have not even taken in interest rates.
And finally we get to interest rates. A longer term in your mortgage means more interest paid over time. Which essentially makes the product of the mortgage just flat out more expensive. So not only can you not afford a standard length mortgage and therefore go for something that is longer; to either reduce the monthly repayments or be accepted by the lender under the strict rules. The mortgage you can get accepted for is more expensive over time. Its really tough spot for people and families desperate to own their own home.
It really doesn’t look good, but when going for mortgage there is options, there always is. Make sure you speak to someone you trust and understands the mortgage market.