The Nationwide Building Society has said that most mortgages being taken out by first time buyer are for terms above the average 25 years. Indeed, 70% of its first time buyer mortgage products are being taken out for longer, with most over a term of 35 years. In 2010 the proportion was 45%.
A mortgage of £200,000 with a standard interest rate would currently cost around £1,050 over a 25 year term. This would reduce to £876 a month over a 35 year term, adding around £50,000 to the repayments, so extending the repayments over a longer mortgage term brings down the monthly payments. However, it can significantly increase the cost of the mortgage over its lifetime, with additional interest amounting to as much as 40%.
Affordability may have brought about the change, but experts say there is also a cultural shift amongst millennials who also increasingly take a different view of home ownership.
Rather than considering the overall cost of their investment, as was perhaps the norm for older generations, younger people are approaching house buying in the same way they approach getting other things, such as buying a new car.
The ‘have it now’ generation has become used to simply finding ways to afford what they want now. They are used to low inflation and interest rates but may yet be unaware of the devastating effects their commitments may have on their long-term finances should these change.
So, should home buyers, or indeed mortgage lenders, be worried about having to take out a longer mortgage term? Not necessarily.
Many first time buyers treat their first mortgage simply as a way to get on the housing ladder, with little thought of staying in the property long term. Once they save a bit more money, they can move up the ladder and perhaps then consider the amount they will pay overall.
If you’re buying your first home, even if you don’t intend to stay in it, make sure you get a building survey from an independent Chartered Surveyor.