The number of over-40s taking out 35-year mortgages has risen by nearly 40% this year. Higher house prices and the cost-of-living squeeze is thought to be driving the trend.

The number of people aged over 40 taking out mortgages with a term of 35 years or more has increased sharply.

More than 3,000 over 40s are predicted to take out the long-term mortgages by the end of this year, showing a 39% increase compared to last year, and a 433% increase compared to 2020..

In the first two months of this year, a total of 478 people in the over-40s age group took out a home loan with a term of at least 35 years, according to Financial Conduct Authority data acquired by Quilter.

Karen Noye, mortgage expert at Quilter, said: “Since the pandemic, we have seen a steady increase in the number of over 40s taking out mortgages with longer terms.

“And while this is not inherently wrong, it does have the potential to stretch people’s finances later in life.

“While the sales remain in the hundreds for now, the spike is concerning nonetheless.

“For those people considering entering into a mortgage that will see them well into retirement, it is vital they think ahead and are aware of the potential risks.”

Why is this happening?

There has been a steady increase in people taking out mortgages with terms of 35 years or more in recent years.

But the rise has previously been driven by younger people, particularly first-time buyers, who typically opt for a longer mortgage term to help keep their monthly mortgage repayments affordable.

The rise in older homeowners choosing a longer term is thought to have been driven by the combination of high house prices and the cost-of-living squeeze.

What are the pros and cons of a longer mortgage term?

The main advantage of a longer mortgage term is that it keeps monthly mortgage repayments lower.

For example, if you have a £250,000 with an interest rate of 5% and a 25-year mortgage term, your monthly repayments would be around £1,460.

If you increase the term to 35 years, your monthly repayments would fall to £1,260.

But there is a downside to repaying your mortgage over a longer period, as it means you will pay more in interest over the lifetime of the loan.

In the example above, you would pay a total of £188,443 in interest if you repaid your mortgage over 25 years, but the figure would soar to £279,922 if you repaid it over 35 years.

Why should older borrowers be cautious?

While many homeowners may be happy to pay more interest in the long run if it enables them to afford to buy the property they want, older borrowers should think carefully before taking out a 35-year mortgage term.

This is because the mortgage term will continue after they have retired. For example, if someone aged 41 who takes out a 35-year mortgage will be 76 by the time they repay it.

As a result, they need to make sure they can continue to afford their mortgage repayments once they have stopped working and that doing so will not negatively impact their standard of living.

People aged over 40 thinking of taking out a mortgage with a 35-year term should consider taking financial advice to ensure they can still afford it during retirement.

They could also opt to make overpayments before they retire, to help them payoff their mortgage sooner.

Key takeaways

  • The number of people aged over 40 taking out mortgages with a term of 35 years or more has sharply increased
  • The trend is being driven by high property values and increases to the cost of living
  • The longer term means over-40s will not only pay more interest over the life of their loan, but will still be repaying off their mortgage during retirement