Millennials who are first-time homebuyers are facing new challenges as they struggle to make homeownership a reality, with many young people opting for “ultra-long” mortgages that will last throughout their retirement. According to data from the Bank of England, hundreds of thousands of homeowners have taken out mortgages that they will still be paying off into retirement, due to the surging house prices and less affordable rents in many areas of the country. With student loan repayments, taxes, and deductions, many homebuyers feel that a longer mortgage term is the only way they can afford to pay off their debts.
According to Martin Tapper, a mortgage broker from Essex, most of the first-time homebuyers he has advised this year have chosen 40-year mortgage terms. A young family can escape exorbitant rent costs with a cheaper mortgage rate on a longer-term, even if more overall interest will be paid over the entire term of the mortgage. Tapper adds that it is vital to get insurance to protect against payments becoming uncomfortable if someone’s health deteriorates or they lose their job.
For Shane Lees, a first-time homebuyer, weighing up the benefits and pitfalls of an ultra-long mortgage has proved to be a serious financial endeavor. He and his partner have decided to choose a mortgage term of 35 years, with the hope of reducing it to 25 years at the end of a two-year fixed deal. For Shane, a longer mortgage seems to be the most sensible option at the moment if he and his partner manage to find a property valued at about £370,000.
While long-term mortgages can provide relief to first-time homebuyers like Shane and Nicola, they should adopt a plan in place to pay it off and deal with life’s “unexpected twists and turns.” Extended mortgage terms may not be ideal for everyone, particularly if homeowners retire and are unable to afford their mortgage, prompting them to raid their pension savings and live on less.
To make mortgages more affordable, homeowners can choose to move to an interest-only deal, pay more, or extend the life of their mortgage. However, they must realize the risks and make an informed decision. It is pertinent to have a plan in place if they decide to carry the mortgage into their retirement and opt to downsize, just in case they change their mind and want to stay in their home.
In conclusion, the sharp rise in mortgage terms beyond state pension age is becoming common for first-time homebuyers due to surging housing prices and less affordable rents. Extended mortgage terms can bring relief in the shorter term, but homeowners will pay off more overall in interest, attracting more risks to raiding their pension for a home loan. Thus, they need to think critically about the implications of an extended mortgage term and take informed decisions.
Additional reporting by Bernadette McCague
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