Longer-term mortgage loans

Lenders are stretching the loan terms on mortgages as cash-strapped first-time buyers struggle to get that first foothold on the ladder.

But though a longer-term mortgage might improve affordability for young buyers, experts are warning borrowers to be aware of the consequences.

Alliance & Leicester, Nationwide and Halifax can all lend over 40 years – 15 years longer than the traditional 25-year mortgage term.

Abbey and Northern Rock will lend over 35 years and specialist lender Mortgage Express, owned by Bradford & Bingley will lend over 45 years in some circumstances.

By stretching the loan term borrowers can bring down their initial monthly repayments. For example, someone taking out a £200,000 repayment loan at a rate of 5.7 per cent would have monthly repayments of £1,020.78 on a standard 25-year mortgage. In contrast, the same loan taken out over 35 years would reduce the monthly repayments to just £901.07 or down to £868.64 over a 40-year term.

But Brian Murphy, lending manager at Mortgage Advice Bureau, says stretching your loan term should only be a last resort.

‘Stretching a mortgage term to lower the repayments is a risky business,’ he warns. ‘It may never be the ‘right time’ to remortgage and take on the higher payments, which could leave a serious mortgage problem well into retirement.’

Most lenders will offer their full range of products to borrowers regardless of the term over which they choose to take the debt – for example, the best two-year fixed rates will be available whether you want to pay over 25 years or 40 years.

However, some lenders put age restrictions on some deals where a borrower wants to take the loan over an extended term.

Abbey will lend on a 35-year term but not if that takes the borrower beyond the age of 85 and Mortgage Express will lend on a 45-year term but not if it takes the customer beyond the age of 75 years.

‘I would advise all borrowers to keep their mortgage debt to as short a term as possible,’ says Murphy. ‘This enables them to free up money for pre-retirement investments. Also, borrowers must bear in mind that their income is likely to drop considerably in retirement.’