In to consider overpaying whilst rates remain

In the past, 25-year mortgage terms were the norm, but new Government figures show that over half of first-time buyers are taking out mortgages of 30 years or more.

Facing increased house prices and more stringent affordability checks, the number of first-time buyers taking longer term mortgages to reduce monthly repayment costs has increased by 40% according to the English Housing Survey.  The change has come about quite quickly. Today, 42% of first-time buyers have a mortgage term of 20-29 years – a drop of 6% since 2016, when over half chose a mortgage on the same terms.  “The rise of longer mortgages is an unintended consequence of the FCA’s mortgage affordability rules, which ensure people could afford their monthly repayments if interest rates rise.  We are seeing a lot of movement towards 30-plus year mortgages” said Daniel Hegarty, CEO of online mortgage firm Habito.   Lower monthly mortgage commitments will help many first-time buyers get on the ladder, but they would be wise to consider overpaying whilst rates remain low.

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Paying a little extra each month means having a lower outstanding balance if rates rise in the future, or making higher repayments will knock years off a mortgage term and save thousands in interest payments.  A first-time buyer taking a £300,000 mortgage over 30 years on an average rate of 4.09% could off their debt 4 years early and save £35,260 in interest payments, by overpaying their mortgage by £200 per month. If that is unrealistic, a minimal £25 overpayment can still reduce your mortgage term by 7 months and save you £5,737 in interest payments, according to the moneysavingexpert.

com overpayment calculator.  Whilst longer term mortgages are becoming the norm, first-time buyers should be factoring in the overpayment facility and using it to their advantage, to save money and to be mortgage free earlier than expected. 


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