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A 35-year mortgage could cost you more 

As an established medical or dental professional, you may be ready to invest your money in property, but feel that the high property prices are preventing you from doing so. In this article, we discuss why longer term mortgages offered by some lenders may not be the best solution for professionals looking to get on, or progress, up the property ladder.

This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Sky high property prices 

Many buyers feel priced out of the property market, particularly in the South-East. Here property prices are some of the highest in the country. On average, a property in the South-East costs around £460,321, according to property agent, Foxtons. Whilst the national average is £223,257.

Areas around the capital, specifically in the boroughs of Waltham Forest and Newham have seen some of the highest annual growth in property prices.

Why longer is not always better

To make it easier for hard working professionals like yourselves to purchase a property, some mortgage lenders are offering 30 or 35 year mortgages. The average length of a mortgage is 25 years.

The offer of a longer term mortgage may seem attractive on the surface, as it means that your monthly mortgage repayments will be lower.

However, there is a warning to be had with taking out such a mortgage – it will cost you considerably more in the long term.

This view is shared by Sam Wood, head of the Bank of England’s Prudential Regulation Authority. In a recent speech, he expressed concerns that longer term mortgages will mean that the money people are putting away for retirement will be eaten into by mortgage repayments. Leaving them with less to live on later in life.

The example below demonstrates how much more a longer term mortgage could cost you.

The examples are based on: a loan of £450,000, with an upfront charge of £500 and interest rates averaging 4.5pc over the full term.

Over 25 years

Monthly repayments average £2,501 and the total paid (interest and capital) is £750,374.

Over 30 years

Monthly repayments average £2,280 and the total paid (interest and capital) is £820,830.

Over 35 years

Monthly repayments average £2,130 and the total paid (interest and capital) is £894,455.

A 35 year-mortgage will cost you nearly 20% more than a 25-year mortgage.

Work with a mortgage adviser that can provide you with comparisons for various terms.

Of course, it may be that if you are a first time buyer, you may want to opt for a longer-term mortgage initially, so your payments are more manageable.

However, as your earnings increase it is typically wise to reduce the term of your mortgage so you are always stretching what you pay-off and reducing the overall amount you pay.

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