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A 35 year mortgage could cost you an extra £75,000

As first time buyers struggle to afford to buy, the number of 35 year mortgage are increasing. But what do they really cost?

35 year mortgage

35 year mortgages are increasing in popularity. A mortgage term stretched over a 35 – rather than the traditional 25 – year period offers borrowers a way of affording their first home and keeping their monthly payments down.

More 35 year mortgages on offer

While the days of the 25 year mortgage aren’t over, there’s definitely a trend to longer term products being offered.

Recent research from Moneyfacts suggests that nearly 2,800 products – 57 per cent of the entire market – now have a maximum mortgage term of up to 40 years, a not insignificant 350 products more than in 2018.

Just today, Accord Mortgages has extended it’s maximum mortgage term from 35 years to 40 years.

In the current climate it’s no surprise we are seeing more longer term products on offer. Lenders are keen on the deals as a way of attracting first-time buyer customers at a time when they can’t afford to drop interest rates any lower.

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The price of a 35 year mortgage

But research conducted by mortgage brokers L&C and Quilter, the financial planner, shows the dangers associated with “marathon” 35-year loans.

The Times reported last week that Quilter had compared the market-leading 35-year mortgage with one lasting 25 years. Both loans they examined were available for buyers with a 10 per cent deposit and offered a two-year fixed rate of interest for a property worth £193,701, which is the average price for a home paid by a first-time buyer.

Analysts found that the overall cost of the longer loan over its lifetime was £78,355 more expensive than the best-value loan for 25 years, coming to a total of £389,484, instead of £311,129.

Gemma Harle, managing director of Quilter, told The Times that borrowers should treat the longer mortgages with extreme caution, suggesting that many enter into the agreements without fully comprehending the commitment or consequences.

“There’s a worrying increase in the number of 35-year mortgages being sold,” she said. “First-time buyers take the term because they’re keen to get their hands on the first set of keys — either because it’s the only mortgage they can afford or because they like the idea of having a little bit of extra spending money on a month-to-month basis.

In reality they are paying over 20 per cent more during the lifetime of the loan compared to if they got a 25-year mortgage, which often works out tens of thousands of pounds more. In many cases it is worth your while to continue renting for a few more years till you can afford a 25-year loan.”

What to think about before taking a longer term mortgage

David Hollingworth, associate director at L&C Mortgages, examined a “more realistic” scenario where borrowers on both mortgages kept switching around every two years in order to keep their initial, more competitive rate.

Even in this case, he found that the 35-year mortgage would be £28,301 more expensive to service than a 25-year alternative on the same terms.

“There’s a cautionary note for borrowers to understand when they are considering taking a longer mortgage term,” he told The Times.

“Although it will reduce their monthly payments, which can help build some flexibility into monthly affordability, it will ultimately cost a lot more in interest compared with the same mortgage over a shorter term.”

It makes sense then that if you do go ahead and opt for a longer term mortgage, you keep the term as low as possible and keep your mortgage 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.

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