Mortgages with 40-year terms rising in popularity

Posted on Wednesday, July 3, 2019

Mortgages with the option of a 40-year term is rising in popularity, according to data collected by Moneyfacts.

The research shows that the number of products with a 40-year term option increased from 1,217 in June 2014, to 2,744 in June 2019.

This represents an increase from 41.54% to 54.98% of the market.

Meanwhile, the number of 25-year term and 30-year term mortgages both declined over the same time frame, falling from 196 to 161, and 392 to 165, respectively.

As a share of the market, the number of 25-year term mortgages fell from 6.69% to 3.23%, and 30-year term mortgages from 13.38% to 3.31%.

Furthermore, the number of 35-year term mortgages remained broadly stable, increasing marginally from 38.40% to 38.49%, over the last five years.

Looking at the figures on a monthly basis, the number of 40-year term mortgages increased from 2,604 to 2,744 – a 4% rise. In contrast, the quantity of 35-year term mortgages fell from 2,221 to 1,921 – a 5% decline.

The number of 30-year term mortgages and 25-year term mortgages remained stable month-on-month, the latter rose from 140 products to 165, and the former from 152 to 161.

As a share of the market this represents an increase from 2.74% to 3.31%, and 2.97% to 3.23%, respectively.

Moneyfacts finance expert Darren Cook says: “In the past, a standard term of a mortgage generally amounted to a period of 25 years, but most products are now available for a period of 40 years.

“Since March of this year, the number of mortgage products that allow a borrower to extend their mortgage term up to 40 years has increased by 140 products.

“A reduction in the number of products available up to a maximum term of 35 years may show that there has been a slight shift in products having an additional five years in the available term.

“A longer mortgage term may reduce the monthly repayments of a mortgage, however, the additional interest that accumulates over an extended mortgage term could be considerable.

“For example, a £200,000 repayment mortgage at a rate of 2.50% over 25 years equates to a monthly repayment of £897.23 and total interest payable would be £69,169 over the term.

“However, the same mortgage taken over a 40-year term would reduce the monthly repayments to £659.56 but increase the total interest to be paid to £116,588, resulting in an additional £47,419 in interest.”

 

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