First Active offers 40-year loan

First Active has become the third Irish lender to offer 40-year mortgage terms, claiming it will help a greater number of younger people purchase their first home.

First Active joins Ulster Bank in offering maximum terms of 40 years to younger borrowers, making it easier for people to afford their own homes by reducing the initial repayments.

First Active's head of marketing, Mr Brendan O'Hora, said 40-year terms make "a huge difference" in terms of affordability.

A single applicant who earns €30,000 per annum and has a net monthly income of €2,200 would be eligible to borrow €152,000 from First Active over a 20-year term. Over 30 years, the lender will advance €196,000, while over a 40-year term, the applicant will be able to borrow €227,000.

The longer term could make all the difference for borrowers trying to find a property within their price range.

Borrowing over longer terms will incur a higher interest bill, First Active concedes.

"Obviously the amount of interest borrowers will pay over a 40-year term would be much more than over 20 years," said Mr O'Hora. "But the average life of a mortgage is six to 10 years, so it's likely that most borrowers won't go through with the full term, but move house or refinance at some point."

The 40-year mortgage will only be available to younger borrowers.

PAYE employees, who are likely to retire when they reach 65, must be aged 25 or less in order to avail of the term. The cut-off point for self-employed customers is 30.

Mr O'Hora said First Active's move did not represent the first sign that its product range would echo that of Ulster Bank, whose parent company, the Royal Bank of Scotland, bought First Active in January.

A 40-year mortgage was part of its product development plans regardless of its acquisition, he said.

Bank of Scotland, part of the HBOS group, also offers 40-year mortgages but only to customers whose loan is 80 per cent or less of the value of the property, which in effect excludes first-time buyers.

Most other lenders offer mortgages over 35-year terms.