The number of homebuyers looking to get a mortgage with a term of 30 years or longer has increased sharply over the second quarter of 2015, according to the Mortgage Search Tracker from Mortgage Advice Bureau (MAB).
The share of borrowers looking for longer-term mortgage products now stands at 21 per cent compared to just 8 per cent a year earlier.
This is clearly a result of speculation about an upcoming rise of the Bank of England base rate. The rate, which has been at a record-low of 0.5 per cent since March 2009, is expected to rise as early as in April next year.
The MAB’s research found that interest in the standard mortgage term of 25 to 29 years has dropped in popularity by 14 per cent year-on-year across all mortgage searches.
Homebuyers are also looking to extend the term of their mortgages so they can achieve smaller monthly repayments. While a longer-term product would indeed result in savings for a while, by the time the mortgage term ends, customers would have to pay a higher amount in total, the MAB says.
“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 per cent 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.”
Remortgaging homeowners, on the other hand, are increasingly preferring shorter-term products. The proportion of remortgage seekers searching for mortgage terms between 15 and 24 years has increased to 13 per cent in the second quarter of 2015 from just 9 per cent in the same period of 2014.
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. The average amount of equity was £122,052 in the second quarter of this year, which is up by almost £8,000 as compared to a year ago. This places them in a strong position to access the best remortgage deals, the MAB says.
“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, explains:
“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.”
