As longer-term mortgages become more common, new research from Santander Mortgages reveals almost half (48 per cent) of potential home-buyers in the Midlands would consider taking out a 40-year mortgage to keep monthly repayments more affordable. Furthermore, first-time buyers who take out a 40-year mortgage could save £178,500, 77 per cent of the average UK house price, when compared to the cost of renting over the same period3.
With 66 per cent of those in the Midlands saying they see renting as just a way of lining someone else’s pockets, Santander has become the latest lender to extend its mortgage terms to up to 40 years, giving more customers a way to manage the cost of buying a home and potentially break the costly renting cycle.
The bank’s findings show that a 40-year mortgage could help 507,750 more first-time buyers get onto the property ladder in Derbyshire, Leicestershire, Lincolnshire, Northamptonshire, Nottinghamshire, Rutland, Staffordshire, Worcestershire and Warwickshire. 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 UK average shows the cost of an average monthly repayment for a 25-year mortgage falls by £263 when spread over 40 years4.
However, nearly a fifth (19 per cent) of buyers in the Midlands 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, a quarter (25 per cent) of buyers in the Midlands would look to reduce the term of a 40-year mortgage if their finances improved, a third (34 per cent) would pay off extra whenever they could to reduce the mortgage term and a fifth (19 per cent) would look to re-mortgage to a shorter term when they moved to a different house.
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 first-time buyers the option of a longer-term mortgage, our aim is to address some of the affordability restrictions they face and support hopeful home owners in getting a foot on the property ladder with more manageable monthly repayments”.
When considering budgeting for monthly mortgage repayments, almost half (47 per cent) of prospective buyers in the Midlands would still want to maintain a certain quality of life and 47 per cent must also factor in other monthly financial commitments such as their car finance. Saving for major life events is another consideration for more than a quarter (29 per cent) of potential buyers, while a third (32 per cent) 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.
