Warning over long-term mortgages

While taking out a long-term mortgage may increase affordability in the short-term, Moneysupermarket.com has queried how wise it is to take on a 40-year mortgage when the average age of a FTB is currently 34 years of age.

With the average house price now £175,000, a 95 per cent loan-to-value (LTV) mortgage would cost a FTB nearly £110,000 more over 40 years than if they started on a 25-year term.

Lousie Cuming, head of mortgages at Moneysupermarket.com, said: “With an increased retirement age an all too real prospect, it may make sense for borrowers to consider increasing the term of their mortgage.

"However, few FTBs would be happy to picture themselves still saddled with a mortgage when they reach retirement age. There is no excuse to remain tied to a longer-term mortgage and it should be amended to a shorter term sooner rather than later.”

But Ray Boulger, senior technical manager at John Charcol, sees the advice as too simplistic.

He said: “How many first-time buyers stay in the first property they buy for 40 years? It’s true a long-term mortgage will cost more, but you can’t be black and white on these things. It can make sense to initially set up a long-term mortgage deal. What matters is how a first-time buyer deals with it after it is set up.

"The cost of moving is so high that it might make sense for a first-time buyer to stretch themselves and buy a property they will stay in for a number of years with a long-term mortgage. Then after a few years, when they are earning more, they can afford to pay the mortgage loan back more quickly. Each case must be looked at on its own merits.”