Home buyers using Help to Buy can now take out a 35-year mortgage

29 August 2019

The government has closed a loophole which stopped Help to Buy homeowners taking out a mortgage for longer than 25 years


Home buyers using the government’s flagship Help to Buy scheme will now find it easier to take out a 35-year mortgage.

The government is closing a loophole preventing purchasers using the Help to Buy scheme from taking out a mortgage of longer than 25 years.

Homebuyers using Help to Buy can borrow up to 20% of the purchase price of a new-build home, or 40% in London.

The move will allow first-time buyers to remortgage once their fixed period comes to an end.

Under the present system, when re-mortgaging after two or five years at the end of a fixed rate period, Help to Buy homeowners cannot take out a mortgage that goes on longer than 25 years. Now they will be able to remortgage for up to 35 years.

Housing Minister Esther McVey says the move reflects change in the wider mortgage market, where the number of first-time buyers taking out a mortgage of more than 30 years has doubled in the last decade.

Jackie Bennett, director of mortgages at UK Finance, says: "We are pleased to have worked alongside Homes England, providing feedback and helping to ensure this new policy is ready for implementation.

“The new changes provide certainty for lenders and should also attract new entrants to the market, providing greater choice for customers who are looking to re-mortgage under the Help to Buy scheme."

How does Help to Buy work?

Help to Buy is a government-backed initiative designed to help people buy a property worth up to £250,000 or £450,000 in London.

Introduced in 2013, it is available to first-time buyers and existing home owners looking to move up a rung on the property ladder with a deposit as low as 5% through an equity loan.

With the scheme, you can borrow up to 20% of the purchase price of a new-build home, or 40% in London. You won’t be charged fees on the loan for the first five years of owning your home.

Should you take out a 35-year mortgage?

Sky-high house prices mean many people are looking to buy later in life.

As a result, more and more people are taking out long-term mortgages, with 35 to 40-year terms becoming increasingly common.

The major advantage of taking out a long-term mortgage is that by increasing you can reduce your repayments as they are spread out over a greater number of months.

It also makes it easier for buyers to meet the affordability requirements of lenders.

However, this means you end up paying interest for longer, which increases the cost of your loan.

For example, taking out a mortgage of £250,000 over 25 years at an interest rate of 3.5% would cost you £375,596 in total, with monthly payments of £1,252.

While a 35-year mortgage at the same rate might be cheaper at £1,034 a month, you would end up paying more overall of £434,150.

One option of getting around a long-term mortgage if you change your mind is to overpay and then reduce the term when you come to remortgage.

Another problem of taking out a long-term mortgage is that you could end up borrowing well into your 60s or 70s when you might have problems paying back your loan or wish to enjoy your retirement.


35 Year FTB Mortgages

What a monumentally stupid idea. Keeping people as debt slaves for longer to support landowners and house - aka land - prices high.

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