How long should my mortgage be?
House prices increased a further 4.5% in the UK this June, now taking the average property price to £265,668. It is no surprise then that more and more buyers are starting to wonder, when and how am I going to be able to afford a home? If you could do it right now, would you?
It may come as a surprise, but there are plenty of options available to you which could help you boost your affordability and get a larger loan to realise your ambitions.
For many years it has been most common for mortgages to have an initial term of 25 years. As such, many borrowers aim for this benchmark, usually for no other reason than because it’s ‘tradition’ and their parents, grandparents and great grandparents did so.
The reality is, as many first-time buyers will detest, properties can no longer be bought with a sum of cash which could be easily squeezed into a briefcase. Many of those who pass on the advice that mortgages should be 25 years also paid a lot less for their homes. At the start of the 1970s the average house price was around £4,000. I know, it hurts! Before you give up all together though, remember the average yearly wage then was around £1,204. Still, buying a property for just over three times your yearly salary is a far cry from the reality we live in today.
In a nutshell, things have changed and so has the way we look at mortgages.
What are my options?
Before you start worrying about taking out a mortgage for a longer term, it may reassure you to know that between 2005 and 2015 the number of first-time-buyers taking out 31-35 year mortgages doubled. Six years on and with house prices continuing to rise, it can only be assumed that this trend has increased.
What does it mean if I extend the term on my mortgage?
When looking at how much money you could be offered on a mortgage, the word you will keep hearing is “affordability”. Affordability is calculated by looking at your monthly budget and then considering your commitments and outgoings.
Once you and your broker have figured this out, they will then know what a reasonable monthly mortgage repayment would look like. It may not be as much as you think, nor want, but this will probably have something to do with the fact that, since 2009, lenders are committed to practice “responsible lending”. Think back to what happened the year before and you’ll have a good clue as to why.
So, if you’ve been offered less money than you need to buy, then increasing the term of the mortgage could be a good option for you. Spreading the loan over a longer period will decrease the monthly repayments and can then increase the loan on offer to you. This will of course come at a cost of more interest overall, but your advisor will go into more detail about this with you.
I don’t want to increase my mortgage term, what options do I have?
Luckily, as the mortgage marketplace has grown, so have the products on offer. Lenders are always coming up with new ways to get you the money you need responsibly. You may have heard of ones such as “joint applicant, sole proprietor” or “family spring-board mortgage”.
The reality is, whatever mortgage you need, we are here to help you get it!