Appetite for longer-term mortgages soars as homebuyers look to stretch out repayments

Increasing numbers of homebuyers are searching for mortgage terms of over 30 years to make their monthly payments more affordable, according to the Mortgage Search Tracker from Mortgage Advice Bureau.

Data from over 250,000 monthly product searches via price comparison websites powered by Twenty7tec shows more than one in five (21 percent) buyers seeking a mortgage in Q2 2015 looked to stretch their repayments over a minimum of 30 years. This has sharply risen from 8 percent a year earlier.

However, in contrast to homebuyers, remortgage seekers are instead looking towards shorter terms. Over one in ten (13 percent) searched for a 15 to 24 year mortgage term in Q2 2015, unlike the 9 percent 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 percent year-on-year across all mortgage searches and by 3 percent since Q1 2015.

Table 1: Change in the percentage of homebuyers and homeowners seeking mortgage terms

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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 percent 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.

Table 2: Total repayments and total interest for different lengths of purchase mortgage plans

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Current homeowners seeking to benefit from shorter repayment terms 

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 by the Search Tracker, 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.

Table 3: Total repayments and total interest for different lengths of remortgage plans

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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.

Of those savvy savers who are looking for a remortgage deal, more than two in five (41 percent) search between 10pm and 6.59am, suggesting that homeowners are being kept up at night looking for their new mortgage plans.

This makes it the most popular time to search for a remortgage deal with almost double the proportion of searches carried out at this time compared to other periods: 23 percent search between 7am and 11.59am, 22 percent between 12pm and 4.59pm and just 14 percent between 5pm and 9.59pm.

Chart 1: Percentage of remortgage searches made in different time periods

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Brian Murphy, head of lending at Mortgage Advice Bureau, said:

“Homeowners should not be put off remortgaging due to the fear of it being a complex process. As we come closer and closer to a base rate rise, there is no better time than now to take advantage of current deals in the market which could save homeowners a surprising amount each month.

“Using a broker can avoid late night panics that apparently lead many homeowners to stay up late searching for a remortgage deal. Spreading the search wider than your existing lender will help you make the most of what is available across the whole market. Competition is high in the remortgage market and brokers are best placed to help you identify the best deal from thousands of products.

“They are also not confined to a 9-5 working day, meaning you can get advice at a convenient time for you and even at a location of your choice.”