The traditional 25-year mortgage could be on the way out

  • 13 Jan 2017

The traditional 25-year mortgage could be on the way out, with growing numbers of first-time buyers opting for deals lasting 30 or 35 years – suggesting that many will still be burdened with home loan debt in their 60s and 70s.

The Halifax said that in 2016, about 28% of all first-time buyers with a mortgage opted for a 30- to 35-year term – up sharply from 11% in 2006.

Meanwhile, the average price first-time buyers are paying hit a new high last year, passing the £200,000 mark for the UK as a whole, and rising above £400,000 in London.

With high house prices, student debts and a rise in the age at which couples have children, many people are tending to buy a home later and opt for a longer repayment term. According to the Halifax, the average age of a first-time buyer is now 30, though this disguises regional variations. The average figure for London is 32, but in certain boroughs, such as Barnet and Ealing, and locations such as Slough in Berkshire, it is 34.

Stretching the term of the loan reduces monthly payments, which can seem attractive to those with tight finances. The Halifax offers mortgage terms of up to 40 years and said that with a repayment mortgage, the longer the term, the lower the monthly payment. 

However, it warns potential borrowers: “It will take you longer to pay off the loan, so you will pay more interest. This means it will cost you more over the life of your mortgage.”

This trend means that mortgages that last into retirement are becoming more common. Traditionally, many lenders would only grant a mortgage up to an individual’s planned retirement date.

In its report, the Halifax said that as the cost of a typical first home has risen, there has been a growing trend towards mortgage terms longer than the traditional 25 years.

In 2006, almost two-thirds (64%) of first-time buyers opted for a term of between five and 25 years, while the remaining 36% were over 25 years. Ten years on, the picture is dramatically different: 60% of first-time buyer mortgages involve a term of at least 25 years.

In 2016, the average price paid by someone who had never owned a property before was £205,170 – the highest on record. At the height of the housing downturn in 2009, the figure stood at £135,254.

In London, first-time buyers have seen the average price rise by 81% since 2009 to reach £402,692 – again, the highest on record.