The pros and cons of marathon mortgages


Category: News

If you’re preparing to take out a mortgage, there are plenty of things to consider. Among them is how long you’ll pay back the loan for. As property prices have increased, it should come as no surprise that mortgages are getting longer. More homebuyers are choosing to take out ‘marathon mortgages’ over a 40-year period.

It wasn’t so long ago that a 25-year mortgage was the default starting point for first-time buyers. Paying back a mortgage over this time frame would put homeownership out of reach for many.

The average property price in April 2018 was £226,906. Even with a competitive interest rate of 2.4%, monthly repayments would be £1,020 with a 25-year mortgage. In contrast, the monthly outgoing would fall to a more manageable £746 with a 40-year mortgage. It’s easy to see why marathon mortgages may be attractive. But are they always the best option?

The rise of marathon mortgages

Just five years ago, only two-fifths of mortgage policies allowed a consumer to sign up to a 40-year deal. That’s now increased to 55%. In line with this, mortgages with shorter terms have fallen. Those with a maximum term of 25 years account for less than 3% of the market.

Lenders are becoming more flexible with age limits too. In the past, it was expected that your mortgage would be cleared before traditional retirement age. Now, however, it’s possible to secure a mortgage that extends far beyond this. Some lenders will even consider applications from aspiring homeowners that are already retired. Given that the average age of first-time buyers is rising, this gives more people an opportunity to take out a marathon mortgage.

Marathon mortgages aren’t going away. If you’re considering taking one out, you need to weigh up the pros and cons first. In some cases, a marathon mortgage can be the right product, but this isn’t always the case.

The advantages of a marathon mortgage

Your monthly repayments will be lower

As demonstrated above, a longer mortgage will mean your monthly repayments are lower. This is the key reason why many people with marathon mortgages choose them.

House prices have increased significantly over the last couple of decades, whilst real-term wages have stagnated since the financial crisis. As a result, taking out a mortgage over a longer term is the only option some aspiring homeowners have. A marathon mortgage may make monthly repayments from impossible to affordable.

It may give you the ability to purchase a more expensive home

A traditional 25-year mortgage may not allow you to purchase a dream home. But a marathon mortgage may mean you’re able to borrow more.

As part of the mortgage application process, lenders will assess your ability to meet repayments. So, reducing this by spreading the loan out can help. Of course, you’ll be making these repayments for longer and you need to factor this into your decision.

The disadvantages of marathon mortgages

You’ll pay more interest

Over the length of a marathon mortgage, you’ll pay far more interest compared to shorter options. When you look at the figures, it may be enough to tempt you towards a shorter option.

Let’s say you need to borrow £200,000 and secure an interest rate of 3.5%.

  • With a 25-year mortgage the total cost would be £300,374
  • Choose a 40-year mortgage and the total cost rises to £371,895

As a result, opting for the shorter time frame would save you £71,521. If it’s affordable to pay your mortgage over a shorter period, it’s worth considering for this reason.

You could be paying a mortgage into retirement

Whilst lower repayments now are attractive, you need to look at the bigger picture. If you take out a 40-year mortgage, what age will you be when it’s complete? How would this affect your financial security and plans?

Choosing an initial 40-year mortgage doesn’t mean you have to pay over this period. Making overpayments or reducing the time frame when remortgaging are options. This could provide you with some flexibility. If this is your intention, it’s a good idea to have a long-term plan in mind.

Are you struggling to understand which mortgage option is best for you? Whether you’re a first-time buyer or looking to secure a new deal, it can seem complex. Please get in touch with us to discuss your mortgage needs.

00/00

Our testimonials

Marion Ohlson

I first met Anthony Kynaston some 13 years ago, when I sought advice regarding an inheritance from my late parents. He immediately impressed me with his friendly, calm, clear and professional manner, ascertaining my individual needs. Tony has since then continued to advise, plan and manage my financial affairs. This includes advice on my Buy to Let property and pension needs. He and his colleagues are always available to assist with any queries I may have. As a result, I can relax and now enjoy my retirement, leaving the complexities of financial management in their safe hands.

Niels Iversen

Ash-Ridge has been advising me for over 25 years. I have seen a very significant increase in the value of my portfolios over the years and have been very impressed by their professionalism, attention to detail, hands on management and care. I have been thoroughly pleased with the service so far.

Richard Tonkin

Ash-Ridge has provided myself and my family with friendly, professional financial advice for many years. I find them trustworthy and reliable, and would not hesitate to recommend them.

Caroline Mullan

I have been working with Tony and Andrew at Ash-Ridge to manage my financial affairs for several turbulent years since 2007. They have supported me with a variety of significant decisions and administration relating to pensions and investments while dealing with ever-changing circumstances as I moved into retirement. I am very happy to work with them, and to recommend their services.

Geoff Vickers

Ash-Ridge have been managing my personal pension investment portfolio for two years. I can say that I am absolutely delighted with the professional way they have handled my assets offering solid and independent advice which has been prudent and reliable. Dealing with an experienced team with first class communication and speed of response when advice is required. They are a pleasure to deal with.

Abel Smith

Sophie and I just wanted to thank you again for all your help in remortgaging. As ever, the service was superb and efficient, we will of course be coming back!

Seena Mistry

We have been using Jane at Ash-Ridge for the last 10 years, which literally speaks volumes for the service we receive. Jane’s honest and straightforward approach is a key part in ensuring we get the deal that is best for us. She is swift and always keeps us updated throughout the entire process whilst allowing us sufficient time to make a final decision. Jane is a first class mortgage adviser and I would recommend her to anyone seeking mortgage or financial advice.