Are extended mortgage terms worth the long term cost?
Over recent years there have been a number of changes in relation to mortgages in the UK. One of the main changes has arisen due to the rising cost of property in the UK, which has made it difficult for many people to buy property, particularly first time buyers who do not have any equity from a pervious property to use as a deposit or put towards the cost of property purchasing. In order to enable many people to get onto the property ladder and to keep the mortgage industry going many lenders have therefore made changes to their mortgages, making it possible for many people that would otherwise have been unable to get onto the property ladder to purchase a property.
A number of lenders have started to offer higher income multiples to those looking to purchase a property, as in many cases the income multiples that used to be used would not have raise adequate funding for purchasers to be able to afford a property. This means that the loan taken out by borrowers is much larger than in the past, and the repayments will therefore be higher. In order to combat the problem relating to the larger loan leading to larger repayments that many borrowers may not be able to afford, lenders have also made changed to the repayment terms offered, with many now offering forty and fifty year repayment terms rather than the traditional twenty five year mortgage.
Although this makes things easier in terms of being able to get onto the property ladder – because you can borrow more money to cover the rising cost of properties in the UK and you can take the loan out over a longer period in order to keep the repayments down – it also means that many borrowers could be paying a fortune in interest and could find themselves in a large amount of debt until they reach or pass pension age. Consumers looking into mortgages are advised to consider whether the reduction in repayments by taking out the loan over a longer term is going to be worth the extra interest that is paid over the term of the loan.
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