Borrowers benefit from more flexible mortgages

Flexible mortgages are increasingly becoming the norm with new research showing almost a third of mortgage lenders are offering terms over 40-years.

Analysis by a leading independent price comparison site shows Tesco Personal Finance's 52-year mortgage is joined by 38 other mortgages with terms over 40 years.

Other long-term mortgages include First Direct's 47-year mortgage, and 40 year mortgages from HSBC and Alliance & Leicester. However, though these mortgages have offer customers greater flexibility, most firms still insist customers pay back their loan by the time they are 65 or normal retirement age.

As well as increasingly lengthy maximum terms, last week saw second biggest lender Abbey more flexible mortgage deals with loans of up to five times salary, catching up with smaller lenders such as Northern Rock who offer up to 5.9 times annual income.

The research by MoneyExpert.com finds longer-term mortgages can mean borrowers pay back a substantial amount less each month - around £1,128 a year less for a 40-year mortgage compared to a 25-year term repayment mortgage.

However, borrowers could find themselves over £70,000 out of pocket due to the interest on the loan for the extra 15 years.

Sean Gardner, chief executive of MoneyExpert.com, commented: "The cost of the average home has doubled in the past five years making it more and more difficult for potential homeowners to buy a house.

“It makes sense that lenders are responding by offering greater flexibility to borrowers whether it is by allowing them to borrow more or by enabling to spread payments over a longer time. The old model of three times salary and a mortgage lasting 25 years maximum is on the way out.

“It can be a good idea to spread payments over a longer period of time if that makes monthly repayments more affordable. However borrowers need to be aware that the longer they have a mortgage for the more they will pay in interest.

"And nobody should contemplate still having a mortgage to pay when they are no longer working and do not have the income to make monthly payments."

MoneyExpert.com finds 23 per cent of mortgage lenders limit their maximum terms to 25 years, 24 per cent to 30 years and 23 per cent to 35 years.XXX