Nearly half of homebuyers would consider taking a 40-year mortgage to get onto the property ladder, Santander Mortgages has found.
Buyers could save £178,500, 77% of the average UK house price, by buying a property rather than renting over 40 years. And 67% of Brits said they see renting as just a way of lining someone else’s pockets. Santander has extended its mortgage terms to up to 40 years.
Miguel Sard, managing director of mortgages at Santander UK said: “The possibility of owning a property may seem like a distant dream to some aspiring buyers, many of whom have found themselves locked in a ‘rent trap’ and unable to get onto the property ladder.
“By offering buyers the option of a longer-term mortgage, our aim is to address some of the affordability restrictions they face and support them in buying a home with more manageable monthly repayments.”
The bank’s findings show that a 40-year mortgage could help 3.25 million more first-time buyers get onto the property ladder.
These are people who would otherwise not be able to afford the monthly repayments associated with a 25-year mortgage based on their salaries and living costs. The cost of an average monthly repayment for a 25-year mortgage falls by £263 when spread over 40 years.
However, nearly a quarter (23%) of buyers didn’t realise that spreading a mortgage over a longer term would mean lower monthly repayments.
Many people would look to reduce the term of a 40-year mortgage later down the line and almost a quarter (23%) would look to remortgage to a shorter-term if their finances improved.
Some 37% would pay extra whenever they could to reduce the length and a fifth (18%) would look to remortgage to a shorter term when they moved to a different house.
When considering budgeting for monthly mortgage repayments, over half (52%) of prospective buyers would still want to maintain a certain quality of life, while two fifths (39%) must factor in other monthly financial commitments such as their car finance.
Saving for major life events is also a consideration for a third of potential buyers, while 28% need to consider saving to cover the costs of having children.
Santander’s research estimates that around 15 million people are looking to purchase a property in the next five years, with data suggesting that first-time buyers are responsible for over half of all property transactions.
Regional data analysed by Santander estimates that taking a mortgage over a longer term would have the biggest impact in the East of England, where 25% more people looking to buy could afford to get onto the property ladder by taking a 40-year instead of a 25-year mortgage.
It’s estimated that 20% more people living in the South-East looking to buy in the next five years, over 600,000, would be able to afford monthly mortgage repayments when they are spread over 40-years.
The same can be seen in London where longer-term mortgages could help another 20% of people take a step towards owning their own property. Taking a mortgage over a longer term would also help over half a million people in the Midlands get a foot on the property ladder.