More than one in five (21%) buyers seeking a mortgage in Q2 2015 looked to stretch their repayments over a minimum of 30 years, rising sharply from 8% a year earlier.
However, in contrast to homebuyers, remortgage seekers are instead looking towards shorter terms. Over one in ten (13%) searched for a 15 to 24 year mortgage term in Q2 2015, unlike the 9% in the previous year.
As appetite amongst mortgage seekers changes, interest in the standard mortgage term of 25 to 29 years has dropped in popularity by 14% year-on-year across all mortgage searches and by 3% since Q1 2015.
As homebuyers are increasingly looking to repay their mortgage over a longer term in order to repay in cheaper monthly instalments, this also means that their overall mortgage repayments are much higher over the full lifetime of the loan. For example, based on today’s average rates, the cost of repaying the average loan over a 30 year period is £23,297 higher than over 25 years, with 25% more interest due overall. This is despite saving £83 a month in repayments during the initial fixed period.
The difference between borrowing over 35 years compared with 25 is even greater: this will save £141 in monthly repayments initially but over the lifetime of the loan, an extra £47,707 will have to be repaid.
For current homeowners, the increasing interest in seeking to repay over a shorter term coincides with remortgage borrowers having the most housing equity ever recorded, averaging £122,052 in Q2 2015: up by almost £8,000 year-on-year. It places them in a strong position to access the best remortgage deals, and potentially seek to repay over a shorter term if they maintain or increase their current repayments.
For example, opting for a 15 year repayment term compared to a 25 year term can save borrowers £36,214 in total interest paid. Even choosing a 20 year term results in a saving of £18,635.
Brian Murphy, head of lending at Mortgage Advice Bureau, said:
“For those fortunate enough to own their home, it is unsurprising that they are looking to capitalise on the profit levied from record house prices by remortgaging. Even more so, they can get rid of their debt quicker and reap the benefits of smaller total repayments as homeowners can often access lower rates thanks to their equity gains.
“With a base rate rise coming into play soon, homeowners who haven’t yet reviewed their existing terms should make the most of the current mortgage climate to secure the best deals.
“On the other hand, homebuyers are tearing up the rule book by searching for longer term mortgages to secure cheaper monthly repayments. However, in the long run this can add up to an extra outlay of thousands with the added interest that comes with borrowing for longer."
