The number of mortgages lasting more than 30 years that have been sold to UK borrowers has jumped 13% in the year to the end of September.
The number of mortgages in that category increased from 459,296 in 2021/22 to 520,779 in 2022/23, according to Bowmore Financial Planning.
It’s likely borrowers are locking onto longer deals as a way to keep their monthly mortgage payments more affordable, during a time when interest rates have ramped up substantially.
The Bank of England base rate increased from 0.1% in December 2021 to 5.25% in August 2023.
Charles Incledon, director at Bowmore Asset Management, said: “The number of people opting for longer term mortgages has caused concern at the Financial Conduct Authority.
“The worry is that some borrowers haven’t fully understood the potential impact 30-40-year mortgages could have on their long-term finances. They will be quite an additional amount in interest.
“When interest rates are low, monthly mortgage payments are easier to manage for borrowers. With interest rates at their current level, 30–40-year deals maybe tempting to those struggling with the cost of living.
“Not only will borrowers be paying much more in the long term, but they are also taking funds away from their retirements. Missing out on that money for so many years can make a measurable difference to the size of a retirement pot.”
Borrowers taking out a 25-year mortgage to the buy the UK’s “average” (property worth £288,000) at the current average interest rate will pay £1,675.18 per month.
Meanwhile borrowers taking out a 40-year mortgage with the same deposit amount would pay a more reasonable £1,430.56 per month.
On the downside, 40-year mortgage holders would pay a total of £572,000 compared to £442,000 for 25-year mortgage holders.