A new analysis by Moneyfactscompare suggests mortgage costs for cash-strapped buyers could be cut significantly if they opt for an ultra-long 40 year term.

Mortgage borrowers could save £255 per month by choosing a 40-year term, compared to a 25-year term deal when borrowing £250,000, based 5.05% mortgage rates. “This could be a lifeline for those struggling to afford payments” says the service.

Borrowers with a 40-year term could then choose to overpay their mortgage, as and when they can afford to do so, reducing the mortgage term without being on the hook for a higher repayment every month.

For example, for a regular overpayment of £200 per month on a £250,000 mortgage can shave almost 13 years off a 40-year term, and save more than £123,000. 

“As consumers work for longer it’s easy to see why the majority (85%) of mortgages allow them to push their term to 40 years. Those prioritising their homeownership plans over their pension may well choose a longer-term mortgage to more comfortably afford mortgage payments” explains Rachel Springall, Moneyfacts’ finance expert.

However, Moneyfacts admits that being asset rich and cash poor in retirement can lead to borrowers paying their mortgage for longer, incurring more interest and eventually they may turn to equity release to boost their disposable income.

“[Longer term] monthly savings come at a cost and borrowers with lengthier mortgages will make monthly repayments for longer and incur paying considerably more mortgage interest overall, so making overpayments to reduce the term and interest incurred is wise.

“For example, those who decide on a 40-year term mortgage instead of a 25-year term can reduce their monthly payment by £255 per month, if they borrow £250,000, based on the Moneyfacts Average Mortgage Rate of 5.05%. However, if borrowers with a 40-year term can afford to overpay by £200 per month, it could shave almost 13 years off the mortgage term, saving them around £123,000. Typically, lenders allow borrowers to overpay by 10% of their outstanding mortgage, but some may allow more.

“A maximum mortgage term of 25 years would have been relatively standard in the past, particularly when house prices were lower, but the majority (68%) of first-time buyers are now taking out mortgages with a term of 30 years or more, according to the Financial Conduct Authority (FCA). 

“Affordability remains a key issue and it’s stretching new buyers, with the Bank of England noting the average deposit paid by first-time buyers was around 60% of their household income in 2024.

“The latest reviews into stress testing are important, and the legacy of these tests are designed to protect borrowers, but it’s important loan-to-income (LTI) tweaks are considered to be reflective of the changing mortgage market. 

“It is understandable that renters may want to take the leap into homeownership, especially when Zoopla revealed that average rents are up £221 per calendar month over the last three years. However, the demand for affordable housing remains a crippling issue for new buyers, which is why they will be hoping the government can make its ambitious target of 300,000 homes to be built each year a reality.”