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Would you take on a 40-year mortgage?

In this fortnight’s mortgage update - record low rates on high LTV mortgages, mortgage lending falls and the specialist lender launching a 40-year mortgage.

September 27, 2018

The launch of the 40-year mortgage

Mortgage lender Together has extended the term on its mortgage products to 40 years in an attempt to help first time buyers to get on the property ladder.

The specialist lender’s CEO says: “A 40-year mortgage can offer borrowers greater flexibility, giving them more options when they come to finding finance for a new home. This could make this type of borrowing more attractive to many younger, first time buyers, particularly in more expensive housing markets around the UK”.

David Hollingworth, mortgage expert at our partners L&C Mortgages says more borrowers have been using longer mortgage terms as a way of keeping their monthly payment down.

“The longer the term the lower the monthly payment is,” he says. “That can offer borrowers some flexibility in their monthly budget which may particularly appeal to first time buyers taking on a mortgage for the first time.  There is a downside though and extending the mortgage term will result in a much higher interest bill over the life of the mortgage so it makes sense to keep the term as low as is comfortable and to keep that under review as your personal situation alters.  For example, trimming the term back when you remortgage or making occasional overpayments when you can will help mitigate the higher interest bill.”

Find out how to cut your mortgage repayments here

Record low rates for high LTV mortgages

Interest rates on high loan-to-value mortgages, which allow buyers to purchase a home with just a 5% deposit, have reached a record low, account to Moneyfacts.co.uk.

Latest data reveals both the average two-year fixed mortgage rate at 95% loan-to-value (LTV) and the average five-year rate have reached their lowest value since Moneyfacts began recording this data in 2007, despite the Bank of England base rate rise in the summer.

“For first-time buyers who often feel they get the short end of the stick, this is fantastic news,” said Moneyfacts.co.uk finance expert Charlotte Nelson. “Many would have expected 95% LTV rates to rise, but instead, in just one month the average two-year fixed rate has actually fallen from 3.95% to stand at 3.73% today, a whopping 0.22% lower.” This is illustrated in the table below; whether you’re looking for a two-year fix or longer, now is a great time to take out a first-time buyer mortgage.”

Mortgage lending falls again

Gross mortgage lending in August hit £24.1bn, some 1.2% lower than a year earlier, latest figures have revealed.

The Household Finance Update by trade body UK Finance found the number of mortgage approvals by the main high street banks in August rose by 0.7% compared to the same month a year earlier. Within this, remortgaging approvals were 9.2% higher than for the same period a year earlier.

Peter Tyler, director, UK Finance, said: “Remortgaging continued to dominate in August, as homeowners took advantage of a competitive market to lock into attractive deals.

“Growth in card spending remained fairly strong, reflecting the boost to retail sales from the warm weather as well as the growing use of credit cards as a preferred means of payment.

“However, the overall economic outlook remains mixed as household incomes continue to be squeezed by rising inflation.”

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