There are lots of factors to take into account when choosing your mortgage, including:
- Loan to value (LTV) – how much you are borrowing as a percentage of the property’s value
- Type of product – e.g. fixed, variable, tracker, discounted
- Interest rate – how much the bank charges you for borrowing the money, which tends to reduce as the LTV comes down
- Early repayment charges (ERCs) – if you take a fixed or discounted product, you will incur a charge for repaying your loan early, before the initial term has expired
- Product fees – essentially, the administration charge
- Whether you can make overpayments and what the limits are
And then there’s the mortgage term - the length of time over which you spread your loan. Interest is applied to the outstanding balance every month, so:
- The longer the term, the less you will pay each month, however it will be more expensive for you overall as you will accrue more interest.
- The shorter your term, the higher your monthly repayments will be, but the less you will pay to the lender over the life of your mortgage loan and the sooner your property will be mortgage-free.
So, for example, if your priority is maximising your monthly cash flow, as is likely to be the case if you are a buy-to-let landlord, you might go for a longer mortgage term. On the other hand, if it’s your own home, you may be keener to pay off the mortgage as soon as is affordable and for it to cost you less overall.
However, with mortgage interest rates still relatively high and house prices continuing to rise, many people – particularly first-time buyers - are opting for longer mortgage terms in order to be able to afford to buy the properties they want.
How long is the average mortgage term?
In the past, with most people aiming to own their home outright well before they retired, 25 years was the ‘standard’ term. But that has risen over recent years, and many lenders will now allow terms of up to 35 and even 40 years.
According to UK Finance, the average mortgage term for first-time buyers is now 31 years, up from 28 a decade ago, and in late 2023 roughly a fifth of all FTBs were taking out mortgages for more than 35 years. Across the board, around 40% of new mortgages have terms that mean borrowers will be making repayments beyond retirement age.
Although some people criticise the idea of extending mortgage terms and carrying debt for longer, it’s worth bearing in mind that we are living longer these days. In 1970, as mortgages were taking off, the average life expectancy was just 72, while it’s 82 today. And, even if you start out with a longer mortgage term, as time goes on and your earnings rise, you may be able to afford to pay more each month. So, when you next remortgage, you can adjust the term - it’s not a one-time-only decision!
Making an informed decision
The right term for you will depend on your personal and financial circumstances at the time you take out your mortgage loan. The best approach is to talk through your situation and options with a qualified mortgage broker, such as one of our experts at Mortgage Scout. We can go through the pros and cons of the different products and terms currently available and help you make the best decision.
You can get in touch with us by completing our online form, chatting with a support agent or calling us directly on 0800 144 4744.
