Homebuyers are having to take out longer mortgages to afford monthly payments, despite inflation coming down, says Barratt Developments, but this could see them paying mortgages beyond state pension age.
Research by David Wilson Homes, part of Barratt Developments, found 43% of those aged over 37 expressed a preference for a long term mortgage, primarily to afford a larger home.
More than a third (36%) of retirees also favoured a long-term mortgage, with 40% of them citing lower monthly repayments as their main motivation. In addition, 31% admitted that fluctuating interest rates heavily influenced their decision to choose a long-term mortgage.
David Thomas, chief executive of Barratt Developments, said: “We have already seen mortgage rates fall over the last month and with inflation at 2% hopefully over the coming months we will see further downward pressure on interest rates alongside improving consumer confidence which will help affordability for home owners and first time buyers alike.”
However, the firm warned that customers opting for longer mortgages in the meantime would need to carefully consider whether they want to pay more interest.
New freedom of information data revealed that in the fourth quarter of 2023, 42% of mortgages had terms extending beyond the state pension age of 66, an 11% increase year on year. Over the past three years, more than one million new mortgages have been issued with end dates beyond the state pension age.
Terry Higgins, group managing director of The New Homes Group New Build Mortgage Services, urged buyers to thoroughly assess their financial situation.
Higgins said: “ Traditional mortgages are usually arranged with a 20- or 25-year term, whereas a marathon mortgage can be anywhere between 30 and 40 years. Before taking out a long-term loan, it’s crucial to evaluate your current financial standing. Take stock of your income sources, monthly expenses, outstanding debts, and existing savings.
“Understanding your financial health will give you a clear picture of your ability to afford and manage a long-term loan responsibly.”
Higgins said buyers should consider their long term goals and how the loan fits into those goals and understand the terms and conditions of the loan.
It’s also important that buyers evaluate the stability of their income.
Higgins said: “While it may seem like a long way off for some, your predicted retirement age is something that should be considered when contemplating a marathon mortgage. If the term of your new loan goes past your planned retirement age, you will have to consider and prove to the lender how you plan to pay for the mortgage once you have retired.”
Finally, buyers should explore alternative options before committing to a long term loan and compare the terms, interest rates, and repayment options offered by different lenders to find the most favourable solution.
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