Rise of 40-year mortgages as prices slip out of reach

MORE than half of first-time buyers are taking out extra-long mortgages of up to 40 years, government figures show.

A trend towards longer borrowing terms, which make the cost of loans thousands of pounds more expensive, has come as a result of rising house prices and the Government’s new affordability checks, experts said.

Longer mortgages reduce the cost of monthly repayments, which are spread out over a longer period. According to the English Housing Survey 52 per cent of first-time buyers now have a mortgage of 30 years or more, sharply up from 40 per cent last year.

In the past, the vast majority of home buyers have opted for 25-year terms. In 2016, more than half (54 per cent) had a mortgage duration of between 20 and 29 years, compared to only four in 10 first-time buyers in 2017 (42 per cent).

The total extra cost of a £300,000 mortgage with an interest rate of 2.5 per cent over 30 years instead of 25, is £22,976, calculations show.

It data came as separate figures revealed mortgage approvals fell to their lowest level in more than four years in December. Some 36,115 were approved, the lowest since April 2013.