A MAJOR building society will now allow first time buyers to take out 40-year mortgages to help them get on the property ladder.
Nottingham Building Society has scrapped its loan to value cap on lending into retirement, which will allow buyers to extend their mortgage term to age 75.
The move will allow younger first time buyers to pay back their mortgage over a longer period of time.
Meanwhile, older borrowers will have the flexibility to take out a mortgage later in life.
The mortgage term will be able to run up to the age of 75 or 40 years, whichever comes first.
But although the move could help first-time buyers to get on the ladder, it could see them pay more in interest over the long term.
A borrower who took out a £200,000 mortgage over a 25 year term would pay £133,370 in interest.
But if they extended the term to 40 years then they would pay £231,348 in interest, £97,978 more than with the shorter term.
The building society is also introducing additional checks if the mortgage term is extended beyond the point at which someone stops working.
It will also take into account confirmed pay rises and future employment when someone applies for a mortgage.
Meanwhile, self-employed people will be able to apply for a mortgage after just two years in business, down from three years.
Plus those who want to buy a new-build flat will be able to borrow up to 85% of the home’s value, up from 80%.
The news comes after the building society announced that it will allow borrowers to take out home loans of 5.5 times their income.
Borrowers previously needed to earn £85,000 to borrow the higher sum but this was cut to £60,000 in November.
Several other lenders including Santander, Nationwide and Halifax also now allow home buyers to borrow more times their salary.
How to get the best deal on your mortgage
IF you’re looking for a traditional type of mortgage, getting the best rates depends entirely on what’s available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
