Mr Affordability says: Is mortgage term a silver bullet for affordability?

We have used MBT Affordability to research this common scenario:

• Two applicants with one child.
• One good salary and one part-time salary
• Small credit card balance and moderate car finance

So, what happens if we flex the term?

The first thing we noted was that the maximum loan is actually higher for a 35-year term rather than a 40-year term. This is because the lenders that offer 40 year-terms are not necessarily those that offer high income multiples.

Furthermore, reducing the term from 35 to 20 years only reduces the maximum loan by 5%. And a reduction from 35 to 25 years results in a reduction of only 1.8%.

Different lenders are at the top when it comes to maximum affordability in this scenario depending on the term, but in this case, it is always the same one at the bottom – although we won’t name and shame on this occasion.

Another interesting trend is that the range in the maximum loan amount offered by lenders increases as the term reduces. The range on 35-year terms is 20% whereas the range on 15-year terms is 53%. The ranking of the lenders also varies much more than you would think.

The simple lesson here is that nothing is simple in affordability. Be careful not to make assumptions when trying to maximise affordability by using the mortgage term.