Increasing numbers of homebuyers are expecting to “work till they drop” as soaring property prices and high mortgage rates force them to take out marathon mortgages in order to be able to afford the monthly payments.
Faced with rising interest rates, the number of first-time buyers taking out 35-year-plus mortgages in 2023 is at a record high. Meanwhile, new measures to avert a “timebomb” include the ability for people to temporarily increase the term of their mortgage without damaging their credit score. But are these trends merely kicking financial trouble 40 years down the line, when homeowners could face being unable to retire because they are still paying off their mortgage?
“No one I know, especially in London, is taking out the traditional 25-year mortgage. I was talking to a friend about whether I should make the mortgage term longer and they turned around and said they had a 40-year mortgage that will end when they’re 68,” says NHS worker Sebastian Janner, 28.
He bought a 40 per cent share in a shared ownership flat in Stratford in 2019 for £300,000. In February, Janner re-mortgaged, increasing the term from 28 to 33 years, meaning he will be 62 by the time he pays it off. “If I had stuck with the same term… I’d be paying around £300 a month extra with the interest rate increases,” he said. “I could have managed it, but it would leave me with very little breathing room if something happened like my washing machine broke down.”
With the increased term his mortgage has increased by only £60 a month, lucky since his service charge and rent have gone up by £70 a month. Janner estimates that half his take-home pay goes towards his flat and says it would be “extremely annoying” if his mortgage takes up the same percentage of his income past retirement age. “If I can’t enjoy life because I’m paying into a mortgage, I’d be very frustrated.”
He and his friends are not anomalies. The number of first-time buyers taking out 35-year-plus mortgages in 2023 was 19 per cent. In 2005, when UK Finance began their records, it was two per cent.
Jonathan Rolande, founder of HouseBuyFast, said: “A 40-year deal, for many, is the only option to allow them to get a foot on the ladder.” Lenders are starting to react to this trend. “Last year, as interest rates started to rise, NatWest for example, increased their maximum age from 70 to 75, using earned income in order to assist more borrowers,” says Colin Payne, Associate Director, of Chapelgate Private Finance.
Jessica Thomas, founder of Prowebsite Guide, is not worried about committing to a mortgage for 35 years. “If interest rates go down, we’d be able to pay it off quicker. I know there are a lot of scare factors but, in the grand scheme of things, property goes up.”
Thomas, 31, bought a two-bedroom house in Hertford with her partner for £407,000 in 2022 and has a mortgage balance of £386,000: “Because interest rates were so high and house prices were high, we bought a fixer upper. We wanted to keep the mortgage low so we had money to do work to the house.”
It’s not just first-time buyers. More than one in five homeowners in the “pre-retirement” age bracket of 55-65 have a mortgage, and six per cent of retirees are still paying off their house.
“I will do what I can to avoid a borrower taking a term into retirement, however, in some instances it simply cannot be avoided,” says Payne. “The key is discussing what will happen when the borrower does retire and what their plans are. Is the aim to repay the loan before then by making overpayments? How will they do this/where will those extra funds come from? Longer terms have a place and have been, and will continue to be, a godsend for many people.”
Jude Barker, 63, can see the benefits. She has just paid £238,000 for a three-bedroom house in Norfolk, which she moved to from a barge in South Dock Marina — between Greenwich and the Rotherhithe Tunnel — and has a 12-year mortgage for £68,000. Barker works in retail in London and her repayments come to £657 a month.
Part of the reason for the move were the mooring fees for her barge, which increased from £4,000 a year in 1990 to £16,566 in 2023. “When you retire, it’s one thing paying off a mortgage, but mooring fees are like renting,” she says.
“At the moment, I think I’ll have to work till I drop. If I could pay it off sooner, that would be great, but I’m not frightened of working till I pay it off.”
Getting a long-term mortgage
Pros
- Your repayments will be less as they are spread over a longer period, making a mortgage more affordable.
- A long-term mortgage often has more flexibility so you can overpay when you have more disposable income and cut back when times are tight.
- As long-term mortgages are more affordable and the stress tests less stringent, you can get on the ladder earlier, buy a larger house or have extra money for renovations.
- Re-mortgaging or paying off the capital can help shorten the term.
Cons
- A long-term mortgage means over time your mortgage is more expensive as you pay more interest and pay back the capitalat a slower rate.
- It takes longer to build up equity in a property so you’ll be more dependent on the house increasing in value and more vulnerable should prices go down.
- If you get a mortgage into retirement age, you may have to continue working, sell the property or have another plan to pay it off.
