Long-term thinking may help clients

Every so often, talk turns to 50-year mortgages and even the 150-year mortgages that exist in Japan where people pass on debt rather than an inheritance to their offspring. Now, Hampshire-based The Mortgage Lender says it is developing a 50-year mortgage.

David Titmuss, managing director of TML, believes a fundamental rethink on how buyers finance their properties is inevitable as the 10 x salary mortgage approaches.

He says: “We are in talks with a lender about launching a 50-year mortgage because a combination of pension issues, property prices and longer life expectancy is working against traditional 25-year mortgages.”

Few would argue with that and it seems to be a well thought out plan. More people are looking at their homes as pensions and a 50-year mortgage would effectively be a way for them to invest and save as well as a mechanism for buying their home. It could also help tackle the problem of more people taking out interest-only mortgages, which effectively means in 25 years they will still have their original mortgage value to pay off.

And it makes sense in demographic terms. With people now expecting to work until they are about 70, there’s no reason why they shouldn’t have mortgages.

TML also argues this could be good for the sub-prime sector. I’m not so sure – do people with adverse credit want to face the prospect of never being debt-free?

The other problem is for lenders – what guarantees will they have that mortgages will ever be paid off? What happens if a single person dies leaving no relatives behind – will the lender chase the pet dog for the debt?

But any attempt to tackle the problem of people struggling to meet repayments should be welcomed, especially given the latest figures from the Council of Mortgage Lenders.

It has reported that interest rate rises have pushed up mortgage interest payments for first-time buyers to the highest level for 15 years. The CML’s survey on regulated mortgages shows first-time buyers in April were paying 18.7% of their income on mortgage interest – the highest since 1992 and up from 16.3% in April last year. Rising rates are also affecting home movers, who in April were paying 16.3% of their income on mortgage interest – also the highest level since 1992.

And despite the recent decision by the Bank of England to hold rates at 5.5%, borrowers will see further increases in the proportion of income they spend on mortgage interest payments once May’s rate rise starts to bite.

Most commentators expect rates to rise to 6% this year. If one lender decides to introduce a 50-year mortgage I’m sure others will follow, but at the moment I’m not convinced it’s anything more than talk.