Hard-pressed homeowners rush to get extended mortgages

Soaring numbers of hard-pressed homeowners are extending the life of their mortgage to cut payments.

Mortgage brokers have seen a sharp rise in customers taking the 'longer life' option when their current deal ends.

Around 10 per cent of people who have re-mortgaged in recent months have taken the radical decision, experts say.

On a 25-year mortgage, the average term, monthly repayments on a £155,000 loan are £999.

Increasing the term to 30 years cuts payments to £929, while they drop to £884 for a 35-year deal.

With household bills, from food to fuel, rising rapidly, family finances are stretched to the limit. The chance to cut mortgage repayments is very tempting for those struggling to make repayments and fearful of repossession.

The mortgage broker John Charcol said that over the last two months between 10 and 15 per cent of its clients who have remortgaged have either extended the life of their mortgage, or switched to another cheaper alternative  -  an interest-only deal.

Ray Boulger, senior technical expert at John Charcol, said: 'The key thing is that a homeowner who needs to remortgage must feel they can afford the higher payments. If they cannot, it is much better to either extend their mortgage or switch to an interest-only deal.

'These are much better options than the alternative which is to struggle with their mortgage.'

David Hollingworth, mortgage expert with brokers London & Country, said the move should be treated only as a last resort. It may cut costs in the short-term but adds tens of thousands to the total cost of the mortgage in the end.

With a £155,000 mortgage paid off over 25 years at a rate of six per cent, the bill for interest is £144,601. Over 30 years, that jumps by £35,000.

Mr Hollingworth said: 'If you are facing higher mortgage repayment, extending the term of the mortgage will reduce them but will increase overall costs dramatically. It should be treated as more of a last resort.'

In May and June, about eight per cent of all the people who remortgaged with London & Country extended their terms.

Another broker, Savills Private Finance, also said it has anecdotal evidence that more people are choosing longer-life deals.

Francis Ghiloni, business development director of the mortgage advice website Mform.co.uk said: 'Borrowers should do as much as possible to make their mortgage payments affordable.

'It is far better to do something such as extending the mortgage term or even moving part of the loan to an interest-only basis than just putting your head in the sand and hoping for the best.

'That's the way to end up getting repossessed or being forced to sell your house and trade down.

'As long as the mortgage is not being extended so that you're still repaying it when you should be retired it can be a sensible way to ride out the current storms.'