As longer term-mortgages become more common, new research from Santander Mortgages shows that nearly half of buyers would consider taking a 40-year mortgage to get onto the property ladder. Analysis of data by the bank shows that buyers could save £178,500, 77 per cent of the average UK house price, by buying a property rather than renting over 40 years3.
With 67 per cent of Brits saying they see renting as just a way of lining someone else’s pockets, Santander has extended its mortgage terms to up to 40 years, giving more customers a way to manage the cost of buying a home and potentially break the costly renting cycle.
The bank’s findings show that a 40-year mortgage could help 3.25 million more first-time buyers get onto the property ladder. These are people who would otherwise not be able to afford the monthly repayments associated with a 25-year mortgage based on their salaries and living costs. The cost of an average monthly repayment for a 25-year mortgage falls by £263 when spread over 40 years4.
However, nearly a quarter (23 per cent) of buyers didn’t realise that spreading a mortgage over a longer term would mean lower monthly repayments. Many people would look to reduce the term of a 40-year mortgage later down the line, almost a quarter (23 per cent) would look to re-mortgage to a shorter-term if their finances improved, 37 per cent would pay extra whenever they could to reduce the length and a fifth (18 per cent) would look to re-mortgage to a shorter term when they moved to a different house5.
Miguel Sard, Managing Director of Mortgages at Santander UK said: “The possibility of owning a property may seem like a distant dream to some aspiring buyers, many of whom have found themselves locked in a ‘rent trap’ and unable to get onto the property ladder.
“By offering buyers the option of a longer-term mortgage, our aim is to address some of the affordability restrictions they face and support them in buying a home with more manageable monthly repayments.”
When considering budgeting for monthly mortgage repayments, over half (52 per cent) of prospective buyers would still want to maintain a certain quality of life, while two fifths (39 per cent) must factor in other monthly financial commitments such as their car finance. Saving for major life events is also a consideration for a third of potential buyers, while 28 per cent need to consider saving to cover the costs of having children.
Santander’s research estimates that around 15 million people are looking to purchase a property in the next five years, with data suggesting that first-time buyers are responsible for over half of all property transactions6.
Regional data analysed by Santander estimates that taking a mortgage over a longer term would have the biggest impact in the East of England, where 25 per cent more people looking to buy could afford to get onto the property ladder by taking a 40-year instead of a 25-year mortgage.
It’s estimated that 20 per cent more people living in the South-East looking to buy in the next five years, over 600,000, would be able to afford monthly mortgage repayments when they are spread over 40-years. The same can be seen in London where longer-term mortgages could help another 20 per cent of people take a step towards owning their own property. Taking a mortgage over a longer term would also help over half a million people in the Midlands get a foot on the property ladder.
For more information on Santander’s mortgages and other products please visit: www.santander.co.uk/personal/mortgages
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Notes to Editors
- Research conducted by Opinium from 8th March to 11th March 2019, amongst a 4,001 nationally representative sample of UK adults of which 1,163 were looking to purchase a property in the next five years.
- Rental and mortgage affordability calculated by comparing regional monthly costs to the Office for National Statistics Annual Survey of Hours and Earnings (ASHE) 2018 annual gross pay by region and income decile group dataset (Table 15.7a). Affordability based on the average monthly mortgage repayment against the income of a single adult.
- Santander analysis of regional rent and mortgage data collected in March 2019. Average monthly rental amount for UK and regions courtesy of the HomeLet Rental Index, January 2019. First time buyers’ potential saving by taking a 40-year mortgage vs renting calculated based on average rent payed over 40 years compared to mortgage repayments over 40 years.
- Average monthly mortgage payment for 25 and 40-year mortgage based on Santander data.
- Customers should make sure that the mortgage they are considering is suitable for their needs and seek independent advice where appropriate.
- Drawn from UK Finance data showing 370,000 new first-time buyer mortgages completed in 2018.
Santander UK is a financial services provider in the UK that offers a wide range of personal and commercial financial products and services. It has brought real competition to the UK, through its innovative products for retail customers and relationship banking model for UK SMEs. At 31 December 2018, the bank has c23,800 employees. It serves around 15 million active customers, via a nationwide branch network, telephone, mobile and online banking; and 64 regional Corporate Business Centres. Santander UK is subject to the full supervision of the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) in the UK. Santander UK plc customers’ eligible deposits are protected by the Financial Services Compensation Scheme (FSCS) in the UK.
Banco Santander (SAN SM, STD US, BNC LN) is a leading retail and commercial bank, founded in 1857 and headquartered in Spain. It has a meaningful presence in 10 core markets in Europe and the Americas and is the largest bank in the euro zone by market capitalization. At the end of 2018, Banco Santander had EUR 981 billion in customer funds (deposits and mutual funds), 144 million customers, 13,000 branches and 200,000 employees. Banco Santander made attributable profit of EUR 7,810 million in 2018, an increase of 18% compared to the previous year.
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