40-year mortgages - the good, the bad and the ugly

Tuesday, 14/10/2014

The 40-year mortgage – 20 years ago, you might never have believed the time would come. Today, however, it is fast-becoming one of the most viable options for first-time buyers struggling to get on the property ladder. An evolution of the 20 and 25-year mortgages that peppered the market a generation ago, 40-year mortgages seem a wise choice on the face of things. They offer lower monthly repayments over a more manageable term, as well as the opportunity to afford a home that might otherwise have been a stretch. Plus, with the notion that rising salaries will be a major factor in the repayment process, first-time buyers are looking to shorten the years through higher monthly instalments. It’s no wonder then that the 40-year mortgage looks to be a wise investment, with banks like Halifax and Nationwide providing long-term financial arrangements to some 22,600 first-time buyers last quarter alone. Add to that the growing appearance of the 95% mortgage, and the market appears to be shifting in the advantage of individuals with lower incomes or smaller initial deposits.

So what are the downfalls? While a 40-year mortgage plan certainly has its short-term benefits, it does in fact cost a small fortune to repay in the long run. Indeed, the Guardian reported that a £200,000 mortgage taken out over 40 years at an initial 4% interest rate would end up costing the borrower over double the amount to pay back in total. There’s also the matter of retirement, whereby a 40-year mortgage could end up running beyond your working days and causing significant financial strife in later years.

Whether it’s one of a few options to consider or the only one, the best course of action in any case is to adopt a strong money-saving approach. Cutting costs domestically can make repayment a more manageable, hassle-free process whatever the terms or basis of your mortgage. Making a shopping list, clearing credit card debts and de-cluttering your home can save hundreds, while making energy-saving home improvements through the government initiative, Green Deal, can save thousands.

Payday loans are not suitable for, and would be expensive as, a means of longer term borrowing and are not appropriate if you are in financial difficulty.

Representative 1269.7% APR

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Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk