First time buyers are being tempted by longer mortgages including 35 and 40-year mortgages despite having to pay back double the value of the property.
The availability of Longer-term agreements has risen in the last four years, as the lower monthly payments are attractive.
The Council of Mortgage Lenders show that of almost 80,000 first-time buyers in the second quarter of 2014, 22,000 took out mortgages with a term exceeding 30 years. This is an increase of nearly 10% since 2010.
James Skidmore, Head of Mortgages at AAG, said “First time buyers are looking at ways they can afford the property of their dreams. However, what they don’t take into consideration is the amount they will need to repay increases.”
A £200,000 mortgage spread over 40 years with an initial 4% interest rate results in a total repayment of £401,221 – £836 per month.
Whereas the same amount, spread over 25 years is a total repayment of £316,702 – £1056 per month.
So whilst you save £220 per month, you end up paying nearly £85,000 more for your property.
“Clearly, many people are looking at reducing the term as their financial position strengthens – perhaps through salary increases – but it could be a risky strategy” James warns. “It’s concerning that people may be taking mortgages out well into their retirement years.”
“It’s important that you take your overall budget into account when looking at buying a property. Talking to a mortgage advisor can take into account your position and make a recommendation based on your personal circumstances.”
Your home or other property may be repossessed if you do not keep up repayments on your mortgage.