Major high street bank launches 40-year mortgages for the first time – are they any good for first-time buyers?
A MAJOR high street bank has launched a 40-year mortgage for the first time.
HSBC is now offering a four-decade long mortgage to help people hop on to or move up the property ladder.
The big-name bank said the offer, which is its longest ever mortgage term, could help provide people with lower monthly repayments.
But it’s important to not that extending repayments for a longer time period – homeowners could face paying more in interest.
HSBC’s 40-year mortgage is available to all residential applications, including first-time buyers.
The mortgage term is available through brokers from today and customers making direct applications will be able to apply from September 13.
For those where there is any element of interest-only payments, HSBC’s current maximum 25-year term will continue to apply.
Additional borrowing, either standalone or in conjunction with a remortgage, can now also be taken over 40 years.
HSBC UK has also increased the maximum term to 40 years for buy-to-let applications on both capital repayment and interest-only mortgages.
Andrew Matson, head of mortgages at HSBC, said: “By extending the mortgage term we aim to help make mortgages more manageable with lower monthly repayments and home ownership a reality for our customers.”
Loans fixed for more than 10 years largely disappeared following the last financial crisis in 2008.
But the number of borrowers taking out mortgages lasting 35 years or longer has rocketed in the past over the past year, with uptake more than doubling, according to UK Finance.
Sharp increases in mortgage rates over recent months may make the idea of a longer mortgage term more appealing to some borrowers.
This might particularly be the case for those looking to get on the property ladder for the first time.
Across the market the average two-year fixed residential mortgage rate is 6.72% and the average five-year fix is 6.21%, according to Moneyfactscompare.co.uk.
Experts have warned that while a longer term mortgage might sound ideal to those who are looking to buy sooner, paying more interest is a real concern.
And of course, there’s no guarantee that interest rates will remain the same over the coming 40 years, unless you fix.
Rachel Springall, a finance expert at Moneyfactscompare.co.uk explained that this is because first-time buyers may be struggling to build a deposit and have limited disposable income to afford a mortgage.
She said: “Seeking advice to go over any options in the first instance is a must.
“Longer-term mortgages can be seen as an attractive option to enable would-be owners to get onto the property ladder sooner, as a longer-term allows them to spread out and reduce their repayments, making it a more affordable option.
“However, those who take up longer-term mortgages must keep in mind they will eventually end up paying more money back in interest.”
Nicholad Mendes from John Carroll also warned of the risks for FTBs opting for a longer-term mortgage.
He said: “Lower monthly repayments might be useful as a short-term cost-cutting solution, but you want to ensure that you review the term each time your fixed rate comes to an end when remortgaging or reviewing your options when home moving.”
Nicholas also pointed out that first time buyers do have “the benefit of time” as earnings are expected to increase during the mortgage term.
He said: “It’s important to continually review to ensure your circumstances and make the right decision which could save thousands in the long term.
“Homeowners with a longer term should also consider overpayments.”
Each year fixed rate products typically allow you to make overpayments of up to 10% of the outstanding balance so you can pay off your mortgage quicker.
You can typically do this by increasing your monthly direct debit or make lump sum payments.
“Fundamentally it’s important to ensure to continually review, circumstances can change whether this be work, family or health as you get older and by reducing what you owe will give you more freedom later in life,” Nicholas said.
He also explained that as the average age and term for a first-time buyer increases, there is a growing concern on how much individuals are preparing for retirement.
He said: “It’s always worthwhile to speak with a mortgage broker who can review and provide advice based on your circumstances.”
Below we reveal how you can get the best deal on your mortgage.
How to get the best deal on your mortgage
If you’re looking for a traditional type of mortgage, getting the best rates depends entirely on what’s available at any given time.
But there are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio has changed this could also give you access to better rates than before.
A change to your credit score or a better salary could also help you access better rates.
If you have a fixed rate, you could see higher rates when you come to the end of the current term after 14 Bank rate rises since December 2021.
And if you’re nearing the end of a fixed deal in the next six months it’s worth contacting your broker now to lock in a rate.
If they come down between now and the end of your deal, you can always apply for another rate before you remortgage.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare for you, with most offering free advice to secure you the best deal for you.
Some brokers charge for advice, so ask them first.
It could cost a couple of hundred pounds but it might save you thousands on your mortgage overall.
You’ll also need to factor in fees for the mortgage, though some have no fees at all, or you can add it to the cost of the mortgage, but beware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember, if you decide to remortgage to a new lender you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks, and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
It’s possible to avoid new affordability checks by remortgaging to a new deal with your existing lender, providing you don’t want to borrow more or extend your term.
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