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Surge in popularity for 30+ year terms

The proportion of homebuyers searching for mortgages with terms of 30 years or more has risen 8 percentage points to 21 per cent over the past year.

Research by Mortgage Advice Bureau, using over 250,000 monthly product searches via comparison websites powered by Twenty7Tec, shows terms of 25-29 years remained the most popular in Q2. However, at 63 per cent this is a significant fall from 77 per cent a year earlier.

Just 12 per cent of homebuyers searched for terms of between 15 and 24 years while 4 per cent of borrowers searched for mortgages with terms under 15 years in Q2.

The most in-demand mortgage term for remortgage borrowers was also 25-29 years in Q2, at 76 per cent. However, like homebuyers, this is a less popular option that a year earlier, when 85 per cent opted for a term this length.

The second most popular term length among remortgage borrowers was 15 to 24 years, at 13 per cent, followed by under 15 years and 30 plus at 8 per cent and 2 per cent respectively.

Mortgage Advice Bureau head of lending Brian Murphy says: “Homebuyers are tearing up the rule book by searching for longer term mortgages to secure cheaper monthly repayments.

”However, in the long run this can add up to an extra outlay of thousands with the added interest that comes with borrowing for longer.”

Change in the percentage of homebuyers and remortgage customers seeking mortgage terms:

Source: MAB & Twenty7Tec
  Homebuyers Remortgage
  Q2 2014 Q2 2015 Q2 2014 Q2 2015
% seeking a mortgage of <15 years 4% 4% 5% 8%
% seeking a mortgage of 15 to 24 years 10% 12% 9% 13%
% seeking a mortgage of 25 to 29 years 77% 63% 85% 76%
% seeking a mortgage of  30+ years 8% 21% 1% 2%

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  • Grey Haired Underwriter 19th August 2015 at 10:44 am

    There is the law of unintended consequences when it comes to offering ever longer mortgage terms to reduce payments/increase borrowing capacity. We already know that property price rises create specific problems for FTB’s but enabling them to borrow more and more money only has the result of increasing property prices until they once again go beyond reasonable affordability. Lending them more doesn’t mean they get a better home but just assists in increasing the value of the existing housing stock. We saw this in the late 1980’s where ever larger multipliers had to be used to get the FTB on the market until ultimately a change in economic circumstances brought the whole edifice crashing down.

    The problem is that the introduction of the affordability calculator under MMR has just exacerbated the problem. To some extent a multiplier attached an artificial restriction on the maximum loan and didn’t always take individuals to the maximum of disposable income but the whole concept of an affordability calculator is designed such that a loan can be agreed or declined on a £1 difference and that is just too damned marginal to be prudent. Extending the term had no impact on the multiplier but can have a significant impact on an affordability calculation. To put this another way I would say that lending policies of yore placed an artificial ceiling on property price increases but this has now been removed and it is for others to say whether or not this is a good thing. Personally I believe it will only lead to a build-up of future problems

    The other problem is that too many BTL investors also want to buy in ‘natural FTB territory’ where they can get a better income return. This inevitably causes undue competition in a small segment of the market and can only heighten the impact on values and therefore the need for the owner occupier to borrow higher sums.

    If we want a healthy progressive market something needs to be done to slow down property price increases at levels over and above salary inflation and I think that the only ones with the power to do this are the lenders. Unfortunately I think that the greed at the top will prevent this from happening without third party involvement. I am not particularly pro more and more Regulation but I do think it could be targeted far more effectively.

  • Joker turned broker 18th August 2015 at 11:53 am

    The most surprising thing about this would be if anyone is surprised at all. Post-MMR focus on affordability has left a very narrow scope for judging a product’s suitability; whereas CeMAP teaches you to recommend the shortest term possible for clients, lenders on the other hand almost force you to do the opposite otherwise hardly anyone is borrowing anything!

  • Chris Hulme 17th August 2015 at 5:49 pm

    Whilst clients that go direct on comparison websites may see the longer term as a lower cost option, this certainly wont be the case with any client who seeks professional advice.

    Our experience is that a longer mortgage term is the negative by-product of tighter affordability models. We regularly see scenarios where we agree a target budget with clients that they feel is comfortable and affordable against which we recommend a term so that this is as short as possible within the clients own budget.

    The downside is that on some occasions we see the affordability models deem such an outgoing as unaffordable therefore pushing the clients to take a longer term to meet the affordability model of a lender offering the most cost effective rate/ fee balance for their loan amount.

  • Carl McGovern 17th August 2015 at 5:43 pm

    That’s a very interesting article and I put the increase in 30 years plus terms, down to the affordability calculators being used by the lenders. In most cases were I am using a longer term, than I would normally recommend, I suggest overpaying and therefore reducing the interest payable, that way. Most lenders offer a 10% overpay facility and if you build that into your advice, it can help secure the Mortgage required and also avoid the higher interest a longer term brings.

    Using your Mortgage and property as a proper financial planning tool is the key.