40-year mortgage terms are becoming the norm

At one time, mortgages typically had a standard maximum term of 25 years, but in the days of stricter affordability rules – not to mention higher house prices – those terms can now be extended for much longer than before. Indeed, the latest research from Moneyfactscompare.co.uk shows that 50.89% of all residential mortgage products currently available have a standard maximum mortgage term of up to 40 years, up from 35.93% five years ago, highlighting the changing landscape.

The table below highlights the changes in more detail. As you can see, there are currently 2,604 mortgages with a maximum term of 40 years compared with 1,096 in March 2014, at which time 35-year terms just took the edge by accounting for 36.66% of residential mortgages. Today, the table has turned, with 40-year terms now far more common – and 30 and 25-year terms all but unheard of.

Source: Moneyfactscompare.co.uk

"Historically, a standard mortgage term generally amounted to a period of 25 years, but most products are now available to be extended for a period of 40 years," said Darren Cook, finance expert at Moneyfactscompare.co.uk. "By extending their mortgage term, borrowers may be looking to reduce their monthly repayments and therefore are more likely to meet strict affordability requirements.

"Not only are the number of mortgages at a maximum term of 40 years increasing, but the number of products at max 25-year terms and 30-year terms are decreasing. Between March 2014 and today, the number of 25-year maximum term mortgages has fallen by 152, now accounting for only 2.97% of all residential products available (down from 7.54%). Meanwhile, the number of mortgages with a 30-year max term have dropped even more significantly, falling from 606 to 140 over the period and now account for just 2.74% of the market, down from 19.87%."

The move to extending maximum mortgage terms appears to be in conjunction with providers also extending the maximum age that a borrower may be at the end of a mortgage. As we reported recently, 71% of all residential mortgages can now end when the borrower is 75 years of age or older, whereas five years ago this figure stood at 52%. Given that so many mortgages can now extend into retirement age, it's perhaps little wonder that maximum mortgage terms are similarly increasing, particularly with homebuyers typically getting onto the ladder far later than they used to.

Yet there's a lot to think about before you opt for the longest term possible. As Darren points out, "a longer-term mortgage may reduce the monthly repayments, 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.

"Furthermore, the longer a borrower extends their mortgage term, the older they will be when they have finally repaid their mortgage," added Darren. "An extended mortgage term may go beyond pension age, so it is imperative that these borrowers consider their options and attempt to make provisions if their personal circumstances change."

It's of course a personal decision – are you happy paying more now, safe in the knowledge that your interest payments are lower and you'll be mortgage-free sooner, or would you rather take lower repayments on the assumption that you'll essentially be paying more over the long term, perhaps into retirement? It's all down to your circumstances and affordability requirements, but for those who may otherwise struggle to make repayments, the rise in 40-year terms will certainly be welcome.

Remember, too, that getting the best mortgage rate can be just as important, so use our mortgage search tool to find the deal that could meet your needs, or check out our mortgage calculator to get an idea of what your monthly repayments could be.