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First time buyers taking out longer mortgages

03-Feb-2014

The majority of first time buyers are taking out mortgages that last longer than 25 years, new findings have shown.

According to the Council of Mortgage Lenders (CML) on average, a first time buyer takes out a loan which lasts for 28 years.

It warned that taking out longer mortgages will work out more expensive for consumers in the long-run.

While the monthly repayments are cheaper across a longer term, the total cost of the mortgage will increase as more interest will be paid on the loan.

For example, figures from John Charcol showed that if a couple take out a £100,000 25-year mortgage with an interest rate of four per cent, their total interest bill is £58,351. With a 35-year deal, the total interest bill jumps to £85,965.

Although the amount that they pay each month would be less expensive -  £528 per month for 25 years or £443 for 35 years – the extra ten years means they are paying an additional £27,600 in interest.

Commenting on the findings, Ray Boulger, senior technical director at John Charcol, said: "A loan with a longer term is the nearest thing they can get to an interest-only mortgage."

His comments were supported by Robert Gardner, chief economist at Nationwide, who said: "There is a trend towards borrowers lengthening the term of their mortgage. At present, 52 per cent of mortgages [lent to first-time buyers] are currently over 25 years, up from 40 per cent in 2007. This may, in part, be to lower their monthly repayments, though the shift may also reflect that people are both living and working for longer."

Figures by the Land Registry said the average price of a home in London has gone over £400,000 for the first time to an average of £403,792.
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