More and more house buyers are taking out 30 year or more mortgages in an attempt to cut down on their monthly repayments.
Over 20% of house buyers looked for a long term mortgage in the second quarter for this year, compared with just 8% in the same quarter of last year. Rising house prices means that many people are unable to afford large monthly mortgage payments, and so are looking for ways to reduce their monthly outgoings, even though this means higher interest payments in the long term. With interest rates looking set to increase in the near future, buyers are also moving to secure low rates while they still can.
According to the Telegraph:
“The average mortgage taken out to buy a home between April and June stood at £151,668.
If that is stretched over 25 years, the monthly repayment stands at £634. By contrast, spreading that over 30 years brings the monthly bill down by £83 to £551, and stretching it out to 35 cuts the regular cost again to just £493 per month.
However, the longer time period also means interest accrues for longer, resulting in a bigger overall bill. The 25-year loan would result in an overall interest payment of £91,385. Over 30 years that rises by £23,297 to £114,683. And a 35 year loan would come with a final interest bill of £139,092”.