According to research by broker L&C Mortgages, the number of first-time buyers taking out a 31 to 35-year mortgage doubled in the decade between 2005 and 2015. The average length of a mortgage taken out so far this year is 27 years.
The longest fixes on the market are currently ten years, but two lenders are about to launch 40-year fixed terms, and 50-year fixed mortgages aren’t far behind.
The Prime Minister recently floated the idea that 50-year mortgages, which could be passed down through generations, might be one answer allowing more people to own their own home rather than rent.
For most people, this would mean having to service a mortgage long into retirement, but with cheaper repayments.
As an example, borrowing £175,000 over 25 years would cost £830 per month at 3 per cent, repaying £249,000 in total, including £76,000 in interest.
Over 50 years, at 3 per cent, your monthly payment would be a more affordable £563, which certainly appears favourable when compared to a lifetime of high rent and no asset to show for it.
But, in total, you would repay £338,076, almost double the initial value of the property – and that’s assuming a long-term mortgage could be secured at the same rates.
The new long-term fixes being mooted are not related to the standard variable rate, instead they are financed by issuing covered bonds – so they are not tied to the Bank of England.
While the loan may have the certainty of a never-changing repayment, it is likely to be more expensive than a traditional mortgage.
For investors to be interested, it is thought that the rates might be much higher, which means you might have the certainty of a fixed amount each month with no need to ever remortgage, but the luxury will come at an eye-watering cost.
There are positives about the proposed 50-year fixed rates. You aren’t tied in for the duration, early indications suggest that you could remortgage after five years, the loans would be portable so you can move house, and overpayments would be permitted.
The latter stipulation would be important, as with such a long time frame, it would be hard to build up any kind of equity in the first decade or so, as most of your payments would be made up of interest.
As for the suggestion that such long-term loans could be passed on down the generations, it is not unprecedented.
In Japan, it is an established procedure to do this, but it is to be remembered that the Japanese are much more likely to live in multi-generational households where such arrangements arguably make more sense.
While such specialist loans might be the answer for a very few buyers in Britain who have no other means to get on the property ladder, the real problem – as always – is the lack of affordable housing.
The UK needs to build more homes, rather than find creative ways to saddle our young families with lifetime debts.
- Kirsty McLuckie is property editor at The Scotsman