Getting up to speed with ‘marathon mortgages’ – advice for borrowers

New Freedom of Information data from the Bank of England reveals that in the fourth quarter of 2023, 42% of mortgages had terms extending beyond the state pension age of 66, marking an 11% year-on-year increase. Additionally, data indicates that over the past three years, more than one million new mortgages have been issued with end dates beyond the state pension age.

‘Marathon mortgages’ – those that typically span more than 30 years – may be here to stay, as many opt for these long-term deals for their new homes to keep payments lower. Research from David Wilson Homes reveals a staggering 7,400% surge in demand for these mortgages since early May 2024, according to Google searches.

In a survey of 500 UK homeowners, 51% indicated they would choose a long-term mortgage primarily to benefit from lower monthly repayments.

Among those aged 37 and over, 43% expressed a preference for a long-term mortgage, primarily to afford a larger home. While 36% of retirees also favoured a long-term mortgage, with 40% of them citing lower monthly repayments as their main motivation.

When surveyed, 31% admitted that fluctuating interest rates heavily influenced their decision to choose a long-term mortgage. This was particularly true for individuals aged 35-38, who cited it as the most common influence.

Meanwhile, those nearing retirement, aged 59-65, indicated that income stability was the main reason for opting for a long-term mortgage.

The team from David Wilson Homes Exeter has partnered with Terry Higgins, Group MD at TNHG New Build Mortgage Services, to share five top tips potential borrowers in Cornwall need to consider before taking out a long-term mortgage.

 

1. Assess your financial situation thoroughly

Traditional mortgages are usually arranged with a 20 or 25-year term, whereas a marathon mortgage can be anywhere between 30 and 40 years. Most lenders will allow a maximum term of 40 years depending on your circumstances (such as your retirement age).

By extending the term of your mortgage deal, this essentially lowers your monthly payments as you will have longer to pay back the debt. Some lenders will also allow you to borrow more if you take the mortgage out over a longer period.

Before taking out a long-term loan, it's crucial to evaluate your current financial standing. Take stock of your income sources, monthly expenses, outstanding debts, and existing savings.

Understanding your financial health will give you a clear picture of your ability to afford and manage a long-term loan responsibly.

 

2. Consider your long-term goals and how the loan fits into them

You should be aware that by taking out a mortgage deal over a longer term means you will pay more interest over time. Particularly in the early years, you will be paying less towards your loan as a larger portion of the monthly payment will instead go towards the accrued interest, as opposed to the original loan debt.

Also consider how the loan will affect your finances in the long run and if it helps you reach your goals. Make sure the loan you opt for helps to move you forward instead of holding you back.

 

3. Understand the terms and conditions of the loan thoroughly

Long term mortgages aren’t exactly new. In fact, they have been around for a while and are typically popular with first-time buyers. However, due to higher interest rates, they’ve become more attractive among a wider audience.

When considering a new mortgage product, don't rush into anything without fully grasping the terms and conditions of the loan. Take your time to review all the details, including the interest rate, repayment schedule, fees, and any potential penalties for early repayment or default.

Pay close attention to the small print and seek clarification on any confusing clauses. Understanding the specifics of the loan agreement will help you make informed decisions and avoid unpleasant surprises down the road.

 

4. Evaluate the stability of your income

While it may seem like a long way off for some, your predicted retirement age is something that should be considered when contemplating a marathon mortgage. If the term of your new loan goes past your planned retirement age, you will have to consider (and prove to the lender) how you plan to pay for the mortgage once you have retired.

Ideally, you should make sure you have a reliable source of income to cover the loan payments over the long term. Consider any potential changes in your employment status, such as job stability and salary changes.

Assess whether your current income level is sufficient to comfortably afford the loan payments while still meeting your other financial obligations. It's essential to have a plan in place to handle unexpected financial setbacks, such as back-up savings.

 

5. Explore alternative options before committing to a long-term loan

Before finalising your decision, explore other loan options that might better suit your needs. Compare the terms, interest rates, and repayment options offered by different lenders to find the most favourable solution for your circumstances.

Nicki Reid, Sales Director at David Wilson Homes Exeter, added: “We always advise potential borrowers to speak to an independent mortgage adviser as early as possible in the house buying process who can discuss your mortgage needs in the short, medium, and long term and conclude if a marathon mortgage is the right choice for you. We can do just this Fairfax Heath and Hampton Mill and put house hunters in touch with an independent mortgage adviser who can provide personalised advice.

“Our financial support combined with access to expert guidance will help ensure potential buyers make an informed decision to provide them with peace of mind throughout their home-buying journey.”

 

David Wilson Homes is currently building much-needed new homes across Devon, at Fairfax Heath in Tiverton and Hampton Mill in Okehampton. David Wilson Homes offers a range of schemes to support you with your new home journey, including the Key Worker Deposit Contribution Scheme and Part Exchange Guarantee.