The traditional length of a mortgage used to be 25 years. However, if new reports are taken into account, this may be changing even as you read this. According to new information released by Halifax, a significant proportion of first-time buyers are now opting for a 35-year mortgage term instead of the traditional 25-year term.
A major change in a short period of time
A mere 16% of first-time buyers opted for a 35-year loan period back in 2007. However, this figure has risen considerably over the last eight years. By 2015, it had risen to over a quarter of first-time buyers (26%).
As might be expected, the number of buyers opting for a 25-year mortgage period (and also a lesser 20-year mortgage term) fell by 18%. It currently stands at 30% – a little under a third, as opposed to nearly half (48%).
Are lenders making it easier for cash-strapped first-time buyers to get an affordable mortgage?
It would certainly seem so. In the distant past, many people opted for interest-only mortgages, to make the monthly payments more affordable. However, the perils of these have come to light in recent years, prompting many to opt for repayment mortgages instead. Indeed, regulators are urging lenders to focus on offering repayment mortgages to new buyers, and nearly nine in 10 of all the mortgages granted fall into this bracket (88%).
Spreading the cost of a mortgage over a 35-year period instead of 25 years has clear advantages, especially for first-time buyers. The monthly repayment will be smaller and more affordable. Furthermore, first-time buyers are likely to be younger than those looking to re-mortgage or move home, thus giving them more time to make the repayments over a longer term.
Getting on the housing ladder has proven ever more challenging in the UK in recent years as well. The introduction of a more widely-available 35-year mortgage term thus makes this move more affordable for many who might otherwise be unable to get on the first rung of the ladder.
Does this mean more people will be paying off mortgages into retirement?
While the availability of these mortgages is good news for many, it does pose a crucial question. The size of deposit required for the average mortgage nowadays means first-time buyers will be saving for years before they can apply. By the time they are accepted for one of these 35-year mortgages, there is a good chance they could still be paying it off after they have retired.
It also means there is less room for manoeuvre if a homeowner struggles with their payments and asks for a short-term mortgage holiday. If the mortgage is already stretching into retirement, few lenders would be happy to extend the terms further.
It remains to be seen whether the 35-year mortgage will continue to soar in popularity. However, with rising house prices and large deposits to save for, there is every chance this will eventually be the case for first-time buyers everywhere.