HSBC will launch 40-year mortgage terms for the first time as borrowers scramble to reduce their monthly mortgage payments.
The move is aimed at helping “aspiring homeowners” buy their first properties, the bank said.
It joins a number of other, mainly smaller, lenders who have offered “marathon mortgages” to prospective buyers who may struggle to otherwise afford installments on a more typical 25-year loan.
The new 40-year terms will be available on residential as well as buy-to-let mortgages, and to those who take out their mortgage with a broker as well as those who arrange their own mortgage with the bank directly.
The new term will be available through mortgage brokers from August 30, while customers can make direct applications from Wednesday September 13.
It comes as average mortgage rates on two-year loans stand at their highest for years, currently at 6.7pc. The spiralling cost of mortgages has been caused by the Bank of England’s successive interest rate rises. Central rates stood at a record low of 0.1pc at the end of 2021.
Andrew Matson, head of mortgages at HSBC UK said: “We know that home ownership is a key life ambition for many people, but affordability can be an issue.
“Introducing our first ever 40-year mortgage term underscores our commitment to supporting aspiring homeowners in their journey onto the housing ladder.
“By extending the mortgage term we aim to help make mortgages more manageable with lower monthly repayments and homeownership a reality for our customers.”
Buyers are increasingly taking out longer-term loans to make repayments more affordable. The number of people taking out mortgage terms of 25 years or more increased by 117pc last year, from 40,471 in 2018 to 88,059 in 2022.
But while a longer mortgage term means smaller monthly repayments, homeowners face paying more for their homes in the long term as interest is accrued on the property.
They can therefore end up as being much more expensive to take out than a standard 25-year mortgage and may leave homeowners paying off the loan into their retirement.
Separately the Government is considering how to provide increased incentives for lenders to offer continental-style long-term fixed-rate loans to mitigate shock increases in bills many now face.
Long-term fixed-rate mortgages are popular in countries such as the Netherlands and Denmark and offer borrowers the chance to pay at one interest rate for the entire term of the loan. They are easier for first-time buyers to secure and insulate borrowers against future interest rate shocks. They exist in Britain too, but most borrowers opr for shorter-term fixes.