For a long time the traditional length of a UK mortgage has been 25 years, but runaway house prices and, more recently, dramatically higher borrowing costs are prompting more and more people to “go long” on their home loans.
On Monday, the former pensions minister Steve Webb revealed that younger homebuyers were increasingly being forced to gamble with their retirement prospects by taking on ultra-long mortgages lasting beyond the end of their working life.
The ex-Liberal Democrat MP published data obtained via a freedom of information request indicating that in the past three years, more than 1m mortgages that stretch beyond the current state pension age have been taken out.
Webb tabled the request in response to a recent report from the Bank of England’s financial policy committee (FPC) that revealed that almost half of all new mortgages issued in the final three months of 2023 were for terms of 30 years or more.
Separate figures from the lenders’ trade body, UK Finance, show that by the end of 2023, almost one in five first-time buyers were arranging their mortgage over 35 years, compared with fewer than one in 10 a year before. And while in 2005 the typical mortgage term for a UK first-time buyer was 25 years, that had crept up to 30 years by mid-2022.
Ray Boulger of the broker John Charcol says the traditional quarter-century term was chosen because until about the year 2000 most mortgages were linked to an endowment policy, for which 25 years was considered the optimum period.
Now that more than 90% of house purchase mortgages are taken out on a repayment basis, “there is no logical reason for the default period of a repayment mortgage to be 25 years or, indeed, any specific term,” Boulger says.
In the UK, high house prices, escalating student debts and a rise in the age at which couples have children have contributed to the need for a longer repayment term.
“But what I think has helped to accelerate that [demand] more recently is the fact that interest rates are that much higher now,” says David Hollingworth of the broker L&C Mortgages. “You were getting people going beyond the traditional 25 years, but they would be perhaps sitting at about 30. We are starting to see the proportion going to the full 40 beginning to edge up – so, maxing it out effectively.”