National mortgage lender Teachers Building Society has extended its maximum mortgage term from 35 years to 40 years to help those on lower incomes afford to buy.
Historically, borrowers typically took a mortgage over a 25-year term but as house prices have risen steadily and wage growth has failed to keep pace, more and more borrowers are opting to spread their repayments over a longer time frame.
This has the advantage of reducing monthly repayments, even on bigger mortgages, but it does mean that borrowers pay far more interest on the principal balance as it takes years longer to pay off.
Increasing the maximum term to 40 years will help bring down the monthly mortgage costs
Andy Yates from Teachers Building Society said: ‘Increasing the maximum term to 40 years will help bring down the monthly mortgage costs for people buying a home.
‘With high house prices and an increasing cost of living, saving money on monthly mortgage payments remains important to people buying a home.’
What is Teachers BS offering?
First things first, Teachers Building Society restricts who it will lend to – you’re only eligible for a mortgage from it if you’re a teacher or you work in education in England or Wales.
They will consider newly qualified teachers, teachers on supply, contract teachers and those teaching or working in further education.
Because the lender is based in the South West, it will also lend to local residents in Dorset, Hampshire and Wiltshire – even where they don’t work in education.
The 40-year term is applicable on all of the society’s mortgages and borrowers must earn a minimum annual salary of £13,000 or, if self-employed, have two years or more of tax years’ accounts or SA302s to be considered.
The lender’s best buy rate is 2.39 per cent on a two-year fixed rate up to 80 per cent loan-to-value with a £899 fee plus a £99 application fee.
Taken over 25 years, a £150,000 on these terms would have monthly repayments of £665 and a total repayment of £200,293.
If borrowers opt to take the same deal over the full 40-year term, monthly repayments drop to £486 but the overall repayment total rises to £233,991.
How does it compare?
Teachers is not the only lender to go up to a maximum term of 40 years – both Halifax and Nationwide will let borrowers extend their mortgage over this period within their normal criteria rules.
Borrowers aren’t charged more for the longer term, so rates from Teachers should be compared to these.
Halifax currently offers a two-year fixed rate at 1.46 per cent with a £995 fee for borrowers with between 15 and 25 per cent equity or deposit to put in.
Over 25 years on the same mortgage as above, monthly repayments would be £597 and the overall repayment £180,122.
Taken over 40 years, monthly repayments are £413 and the total repayment over the full term is £199,123. That’s almost £35,000 less than the Teachers deal.
Nationwide’s most comparable deal is a two-year fixed rate at 1.44 per cent with a £999 fee. On the same mortgage as above, over 25 years monthly repayments would be £596 and the total repayable would be £179,705.
Over 40 years, monthly repayments would be £411 and the total repayable would be £198,411 – again, a saving around £35,000 on the Teachers deal.
This is Money verdict
The Teachers deal is not the cheapest on the market but it is a building society that specifically deals with those in the education profession – meaning it has a very specialised grip on the quirks in income that teachers deal with.
It’s much more likely to take a lenient view of teachers on contract work and those on lower incomes who need to spread their mortgage over the longer term.
That said, other lenders might also consider your application even if you fall into this category, so it’s worth comparing what’s on offer.
A fully qualified independent mortgage broker can help you do this with little hassle.
Whether you should borrow for longer will depend on your circumstances and preferences.
For many trying to get a step up on the ladder, it might make sense to take a longer term to start off with, but then switch to a shorter term later in life when you remortgage or move and when your salary has improved.
David Hollingworth, of mortgage broker London & Country, explains: ‘More and more first-time buyers are looking at taking a longer term to begin with which can be revised down at a later date. This means they are at least repaying from the start of the loan and can afford to buy sooner.’
While there is only a handful of lenders that will go up to 40 year terms – within the usual maximum age at the end of the mortgage limits – nearly all lenders now go up to 35 years.
Andrew Montlake, of mortgage broker Coreco, said: ‘The thing to remember with longer terms is that you’re going to pay a lot more in interest.
‘With interest rates and mortgage rates so low at the moment, borrowers might actually be surprised by what they can afford over a shorter term – so it’s worth checking out the alternatives or seeking independent advice from a mortgage broker.’
True cost mortgage calculator
This mortgage payment calculator will allow you to see the effect of sneaky arrangement fees on your repayments. Use the second part of the calculator to compare deals.