Marathon mortgages: should you get a 35-year home loan?

A growing list of big high-street lenders are launching 40-year mortgages for would-be homeowners seeking to lower their monthly repayments.

HSBC last week increased the bank’s maximum mortgage length from 35 years, in a move that head of mortgages Andrew Matson said could help “make mortgages more manageable” and support “aspiring homeowners in their journey onto the housing ladder”.

According to the latest quarterly Household Finance Review from trade body UK Finance, more than half of all first-time buyers and a third of home movers were taking out mortgages with terms of more than 30 years by the end of 2022. And while the “rapid increase” in longer-term mortgages has begun levelling off in recent months, demand remains high.

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A longer mortgage term can make a home loan more affordable as the repayments are spread out. But while many first-time buyers “do not stand a chance of buying their first home with a traditional 25-year mortgage term” as the cost-of-living crisis bites, said This is Money, a so-called marathon mortgage “will cost them tens of thousands of pounds in extra interest” in the long run.

The trend also risks “leaving hundreds of thousands of borrowers paying off loans well into their 60s”, the site warned.

What is a mortgage term?

The mortgage term is the lifespan of a loan – how long it will take to pay off the entire mortgage.

The longer the mortgage term, the more spread out the mortgage repayments will be and the lower the monthly repayments.

A mortgage term and a mortgage deal “are two different things”, said Unbiased. The latter is a period of “fixed or favourable interest rates” at the start of your mortgage term, usually between two and five years.

When the deal comes to an end, you remortgage and “may or may not extend your mortgage term”.

Why are longer-term loans becoming more popular?

Mortgage terms have been getting longer for more than 15 years, said Debt Camel, but the more recent “sudden spike” was prompted by the jump in mortgage rates. Lenders’ affordability checks may deem the monthly payments on a 30-year mortgage to be too high but conclude that “a 35-year mortgage is possible”.

With mortgage rates climbing rapidly over the past couple of years, “taking out a mortgage over 35 and even 40 years has become the only way to make buying a home affordable for many buyers”, said Forbes Advisor.

Should buyers take out ‘marathon mortgages’?

Opting for a longer term that pushes down monthly payments can provide some welcome breathing space to borrowers. But it also “substantially increases” the total interest over the life of the loan, David Hollingworth of mortgage broker London & Country, told the Daily Mail.

According to Forbes Advisor, a first-time buyer taking out a £300,000 repayment mortgage over 25 years at an interest rate of 5% would pay back £226,321 in interest over the term. “But if the same borrower took the loan over 35 years they would pay back £336,198 in interest – £100,000 more,” said the site.

Borrowing for longer could also put your retirement at risk, said MoneyWeek. Clearing your mortgage “before entering your golden years” means you won’t need to factor housing costs into retirement planning. Plus “money that was going towards mortgage repayments could go towards your retirement pot instead”.

Property expert Phil Spencer advises buyers who need to take out a longer-term mortgage to make overpayments where possible. “You might be able to afford to pay more each month as you work your way up the career ladder and earn more,” he said in an article for Move iQ. Or “you may receive an inheritance or bonus which would enable you to pay off a lump sum on your mortgage”, although “this could be subject to early repayment charges depending on the deal you take out”.

Not everyone will be able to get a longer-term loan, since many lenders have maximum age limits for the end of the mortgage term.

But for those who can, “it makes sense for borrowers to try and peg back their term as their circumstances change”, Hollingworth told the Mail. “That could help save tens of thousands in interest over the longer run.”

Marc Shoffman is an award-winning freelance journalist, specialising in business, property and personal finance. He has a master’s degree in financial journalism from City University and has previously written for FTAdviser, ThisIsMoney, The Mail on Sunday and MoneyWeek.