Why Two-Thirds of Under-30 Buyers Are Now on 40-Year Mortgages

This week's mortgage headlines are, on the surface, a bit dull. The Bank of England held the base rate at 3.75% again on 30 July — the fifth hold in a row, with the next decision due on 17 September — and fixed rates barely moved either side of that, with two-year fixes averaging around 5.52% and five-year fixes around 5.64%. Steady as she goes.

But buried in that quiet week was a piece of research that made me sit up: new analysis from the mortgage app Sprive, covering more than 190,000 homeowners, found that two-thirds of under-30s now have a mortgage term of 30 to 40 years. Compare that with just 6% of 40-to-49-year-olds on the same length of term, and you can see how quickly this has become the norm for younger buyers rather than the exception. Many of them, on current projections, won't be mortgage-free until they're 59.

That's not a criticism of anyone doing it. It's simply the trade-off buyers are making to get a foot on the ladder in the first place. But it's a trade-off worth understanding properly before you sign up to it, not after.

Why so many young buyers are stretching the term

Three things are pushing term lengths up. House prices relative to income are still stretched in most of the country. Mortgage rates, while stable, are sitting well above the sub-2% deals of a few years ago. And lenders have, sensibly, responded by widening what's on offer — most mainstream names, including Halifax, Nationwide and Santander, will now go up to 35 or even 40 years, provided the mortgage is repaid by a set maximum age, usually 70 to 75.

Put those together and a longer term is often the only way the numbers add up on a stretched income. As Sprive's chief executive Jinesh Vohra put it, longer terms have become "the price many younger buyers have to pay to get onto the property ladder." I don't disagree. My concern is that too few people are told what that price actually is in pounds and pence.

What a longer term really costs

Take a fairly typical £200,000 repayment mortgage at today's average rate of around 5.5%.

Over 25 years, you'd be paying roughly £1,228 a month, and around £168,500 in interest over the life of the loan.

Stretch the same mortgage to 40 years, and the monthly payment drops to about £1,031 — a saving of roughly £197 a month, which matters enormously if it's the difference between qualifying for the mortgage or not. But the total interest bill climbs to around £294,900. That's an extra £126,000 or so paid to the lender, for the privilege of a lower monthly figure.

Neither of those numbers is "wrong." Affordability today has to come first — you can't buy a house you can't pay for. But you should go in with your eyes open about which trade-off you're making, and, ideally, with a plan to shorten that gap over time.

Three ways to take a long term without being stuck with it

1. Use your overpayment allowance. Most fixed and tracker deals let you overpay up to 10% of the balance each year without penalty. Even £100 a month extra on that £200,000 example above can knock years, and thousands in interest, off the mortgage.
2. Revisit the term at every remortgage. A 40-year term at 25 isn't a life sentence. Every time your deal comes up for renewal, ask whether your income has moved enough to shorten it. Lenders will usually let you reduce the term at no extra cost, provided the new payment is affordable.
3. Check the maximum age the lender allows. A 40-year term taken at 28 runs to 68; taken at 35, it runs past most people's planned retirement age. Make sure the end date actually fits your life, not just this month's budget.

My take

There's nothing wrong with choosing a longer term to get you moving — I'd rather see someone buy sensibly over 35 years than not buy at all while waiting for a "perfect" rate that may not arrive. The mistake is treating the term on day one as fixed forever, rather than as a starting point you actively manage. If you're weighing this up, or you took a long term a few years back and want to know what shortening it would actually save you, get in touch and we'll run the numbers together — it usually takes less time than you'd think.

Kindest regards,

Ian

Ian A Moore CeMAP — Director, IM Mortgage Consultancy Limited

Your home may be repossessed if you do not keep up repayments on your mortgage. IM Mortgage Consultancy Limited is authorised and regulated by the Financial Conduct Authority. This article is for general information only and does not constitute mortgage advice; rates and figures quoted were accurate at the time of writing and are subject to change.