High mortgage interest rates, ultra-long repayment plans - and how to protect yourself

Home loan experts have revealed how the millions of people opting for ultra-long mortgages can protect their finances in old age.

New official figures from the Bank of England have revealed a surge in the number of buyers opting for home loans running for up to 40 years.

In theory as many as 3 million people now have a home loan they will still be paying off long after they have retired.

There are rising concerns that the resulting monthly repayments – with their high interest costs - will leave older buyers facing poverty in old age.

However, industry experts have told the Express that buyers can find ways to protect themselves.

Danny Belton, head of lending at Mortgage Advice Bureau, said: “The average mortgage term for first time buyers used to be 25 years, so while long term mortgages aren't particularly new, the average is now pushing out to 35-40 years.

“This is due in part to the disparity between house price growth and wage growth.

“With the difference so vast, it is easy to see why a longer-term product might be a useful starting point for those looking to get on the ladder as the longer the mortgage term, the more affordable the loan becomes.”

He stressed that opting for a 40-year mortgage in your 30s does not necessarily mean you will still be paying it off in your 70s.

“It's important to know that opting for a long-term fix now doesn't necessarily mean that new homeowners will be paying their mortgage off well into retirement," he said.

"There are ways of reducing a mortgage term. That might be overpaying on your monthly repayments as your income increases, receiving one-off sums of money through inheritance or a bonus, or reducing the term down when you remortgage. “While the debt will still have to be paid off, there are more options on the table. In retirement, interest-only products are available, and equity release can also be something to consider.

“The main thing is to seek advice. For some prospective homeowners, long-term mortgages can be one way to go, but there may also be other avenues worth exploring.”

Praven Subbramoney, Chief Lending Officer at Nottingham Building Society, said: “The sudden rise in ultra-long mortgages is a potential concern for the hundreds of thousands of homeowners that have burdened themselves with terms extending into the retirement age.

“While homeownership is undoubtedly a significant milestone for millions to aspire to, it’s imperative that is being balanced by innovation in mortgage solutions, flexibility in the options provided and a steadfast commitment to borrower protection.

“For instance, longer terms can help with affordability in the short term and make repayments more manageable for both first-time buyers and those remortgaging.”

He suggested people approaching retirement could look at switching to specialist home loans such as Retirement Interest Only (RIO) deals to minimise monthly repayments.

Mr Subbramoney said: “Our RIO mortgages provide borrowers in, or approaching, retirement with the option to retain their home despite a decrease in income.

“And our interest-only criteria allows customers to use the sale of their mortgaged property to repay their loan, meaning they can downsize in retirement to either reduce their mortgage or pay it off completely.”

Jinesh Vohra, the chief executive of mortgage app, Sprive suggested people should look for new sources of income to make overpayments on their home loans.

He said: “With mortgage rates skyrocketing relative to salaries its unsurprising that more and more new homeowners are having to borrow more for longer to get on the property ladder.

“This latest data shows that with new buyers 40-year terms are becoming the new norm and it’s estimated that over 3 million are expected to have a mortgage past retirement.

“At Sprive, we are on a mission to help people ensure they are not paying their mortgages in their golden years, by helping them pay off their mortgage quicker through overpayments - the earlier and the more often you make mortgage overpayments the more you save in the long run.

“However, with rising costs - and increasing mortgage rates - most people don’t have the extra cash to pay off their mortgage faster; and that is how our app can help.

“Our Shop with Sprive feature allows people to earn cashback with brands that our customers are likely to use on a regular basis – our partners include supermarkets such as Asda, Iceland, M&S, Waitrose and Morrisons, as well as DIY stores like Screwfix and retailers customers use every day like Costa, Uber, Just Eat and Primark.”

How to reduce the term of your mortgage

One way to reduce the term of your mortgage is by making overpayments.

If you had a £100,000 mortgage, which was set to run for 25 years at a mortgage rate of 4.5 per cent, then overpaying by £100 a month would reduce the term by six years.

The overpayment would also save you £18,000 in interest over the life of the mortgage.

If you overpaid by £200 a month then the term would reduce by almost 10 years, while the overpayment saving would be more than £28,000.

Most mortgage providers permit you to overpay 10 percent of the amount you borrowed each year – so on a £100,000 mortgage you would be able to pay an extra £10,000 without incurring a fee.

If you make an overpayment with the intention of reducing the term of the mortgage then make that clear to your provider as they will sometimes reduce the size of your future payments instead of decreasing the length of time you have left to pay.