Insights

One in four new homeowners opt for ‘marathon mortgages’ – should you?

New research has found that one in four new homeowners have opted for the longest mortgage possible, now being labelled as “marathon mortgages.”

These can range from 35 years or more in some cases.

The move is to decrease monthly payments due to the cost of living crisis, and the current borrowing rates.

Experian found that 25% of new homeowners aged 29 and under between January and March this year had opted for a repayment term of at least 35 years. Normally this figure would be around 10%.

UK 30-year borrowing costs

In the wider economy, Britain’s long-term cost of borrowing has hit its highest level since 1998 this morning, as the sell-off in the bond market continues.

The yield, or interest rate, on 30-year UK government bonds has hit 5.115% this morning, Refinitiv data shows.

That is above the levels seen a year ago in the panic after Liz Truss’s mini-budget.

It seems people are making decisions after looking at the current economic headwinds.

What are the implications of ‘marathon mortgages’?

Sam Murphy MD of Mortgage Medics has the following to say: “Well, the most obvious reason for taking out a longer mortgage term is that it can mean lower monthly repayments – a crucial factor at a time when inflation hit a 40-year high. And for first-time buyers, that may be what it takes to realistically afford to get on the housing ladder during the current financial climate. However, many people choosing longer mortgage terms could still be storing up problems for the future. For example, they could end up paying a lot more in interest.

“Of course, property buyers are looking for practical ways in which to achieve their lifestyle goals, while still managing their budget in a difficult economic environment. But taking out longer-term mortgages to get on the property ladder can end up being much more costly in the long run, and therefore a false economy. You may also run the risk of reducing the amount of equity you can build up in your property, which may again have long-term consequences.

“Furthermore, if you’re taking out a very long mortgage, you’ve got to consider what you’re likely to be doing at the time the mortgage term ends. For example, if you’re a middle-aged or more mature borrower, your loan term may extend well into your retirement, in which case you’ll have to demonstrate to a lender that you’ll have the means to continue repaying when you’re no longer working. If you haven’t got a repayment plan in mind, you could end up relying on your pension funds and other assets, and therefore having much less money to live off in retirement.

Soaring rents

“Of course, the alternative to buying a property right now is trying to find rental accommodation, which, as many will attest, is far from easy right now. Many parts of the country are experiencing a shortage of suitable homes, which has exacerbated already soaring rents as prospective tenants compete for properties.

“All things considered, if you are really determined to get on the property ladder and take out a mortgage, it’s well worth taking professional advice to be sure of getting a home loan that suits you and your circumstances. And crucially, a specialist in this field will consider your long-term financial goals, so you aren’t hit with nasty, unexpected surprises in the future.”

If this has got you thinking, we’d be delighted to help. Get in touch and we’ll be help you understand what’s possible, or sign up to our monthly newsletter, to keep your finger on the pulse.