Over the last couple of years, the state of play for work has been uprooted, with people finding and many favoring remote work as a viable avenue. Millions of people across the United Kingdom and Europe now find that they don’t need to live in or around cities, commute long distances to the office, or shell up hefty amounts in order to live close to their workplace.
As a result, the housing market has been running wild, with interest rates for mortgages sinking to incredible lows. To get in while the going’s good, even non-bank lenders have been expanding the terms of mortgages to attract more action to the market. On the face of it, longer-term mortgages could help to get more people onto the property ladder, but is a 40-year mortgage a step too far?
The rise of the 40-year mortgage
There was a time when people raised an eyebrow to 30-year mortgages, but now Kensington Mortgages has captured the headlines for being among the first to launch a 40-year, fixed-rate mortgage. As detailed by the BBC, longer fixed-for-term mortgages are already very popular in many parts of the continent and are now being backed by the UK government as it wants borrowers to have more certainty.
Certainty and peace of mind are the key selling points that are being offered by the 40-year lenders, as reported by The Guardian. As for the numbers, the offer’s rate comes in at 2.83 percent for a 15-year term on a 60 percent loan-to-value mortgage, going up to 3.34 percent over the 40-year fixed rate. It does go up to 95 percent loan-to-value, but rates increase with the larger lend.
Is it a good idea to get a 40-year mortgage?
As is the case with all mortgages, the inherent benefit of taking out an even longer-term mortgage, such as a 40-year mortgage, is that buyers will have to pay less per month, freeing up funds to live off of and build up their home. So, an even longer mortgage does make the property ladder much more affordable for those on lower incomes or first-time buyers. The catch, of course, is that interest rates then have longer to accrue.
Luckily for those considering longer-term mortgages, such as the 40-year mortgage, there are several tools to help find the best rates and terms for them. The mortgage broker Trussle compiles mortgage deals for all over to find the best rates and term arrangements. So, people can quickly see how much a longer deal would cost compared to shorter-term but lower-rate mortgages.
As interest rates are currently at record lows, per The Times, fixed-rate deals between two and three percent are, naturally, very attractive to prospective property buyers. That said, adding an additional five or ten years to a mortgage, even at low rates, will add up to a significantly higher total sum of money that buyers would be spending on their home.
Very low monthly fees for a mortgage will always catch the eye, as will record low rates, but if you can afford a shorter-term deal, it’s well worth exploring those options. Essentially, 40-year mortgages should be looked at as a positive step towards making property ownership more accessible, but they are not the best option for everyone.