Most people think of a mortgage term as being 25 years. At least, that used to be the case.

But for first-time buyers looking to get on the ladder, longer terms are becoming more widespread and necessary in order to make the monthly repayments affordable.

That’s because house prices have risen so much, soaring in the last three years alone. At £288,000 in February 2023, the average UK house price according to the ONS is 25% higher than the £230,609 it stood at in February 2020 before the pandemic.

Surge in longer terms

Data from banking trade body UK Finance has shown that first-time buyer demand for mortgages with terms longer than 35 years has rocketed.

In February 2022, 8% of all first-time buyer mortgages had a term longer than 35 years. A year later, this had risen to 18%.

The number of 30-35 year mortgages also increased, from 34% to 38% during the same period.

Gary Smith, financial planning partner at wealth manager Evelyn Partners, explained: “Quite understandably in a period of soaring house prices, new buyers who are desperate to get on the housing ladder in a location that they like turn to these super-length mortgages in order to bring down their monthly repayments,” he says. “With the elevated cost-of-living thrown into the equation, lenders’ affordability calculations are sometimes driving borrowers into longer-term loans.”

Greater overall cost

While spreading a mortgage over a longer period can reduce the monthly repayments, and make it possible to afford to buy a home, it does mean buyers will pay back more overall.

Smith added: “These marathon mortgages keep the initial monthly costs down, but as we all know there’s no such thing as a free lunch, and loans stretched over such a long period come with significant extra costs.

“Even though a borrower might not intend to keep the mortgage product over the full term, they will probably pay more interest and the overall cost of the loan will be greater than a shorter-term mortgage.

“Very little capital is paid off in the early years and this will probably reduce the equity built up in the property – unless overpayments are made. Those with very large mortgages, like 95% loan-to-value, must be aware that a period of falling house prices could leave them in or close to negative equity. Having very little equity in a property can be an issue if they intend to move into a larger home at a later date, perhaps as their first child grows up.

“These very long-term loans might be a decent plan for those who want to keep costs low initially and then look to make overpayments and shorten the mortgage term once their earnings increase. Many such borrowers might for instance expect an inheritance windfall at some point in the future that they can use this to repay the mortgage, and shorten the term.”

“But it is a decent rule of thumb for peace of mind that homebuyers – especially those who are not expecting any rapid salary progression, or big future bonuses – should opt for a loan with as short a term as they can afford so that they build up equity faster and maybe one day reach the end of the mortgage-free rainbow.

“Another issue to consider is that the cost of life cover to insure the mortgage might be more greater as you are putting life cover in place for a longer period of time.

“Finally for middle-aged and older borrowers who are taking out loans that stretch beyond retirement age, there must be a repayment strategy in mind – which the lender will usually want to know anyway before approving the loan. If this isn’t put into place and acted upon, the borrwer could find their pension and other retirement assets badly depleted by continuing mortgage payments.”