View more on these topics

Mortgage terms could be extended to infinity

According to Moneyfacts.co.uk, 80% of lenders now offer maximum mortgage terms of more than 25 years.

This revelation has evoked a ripple of media posturing as though it’s a big deal. But, frankly, the 40-year mortgage has been around for decades.

Mortgages are a bit like a good meal – rarely taken as a single course. They begin with a starter, are followed by a main course and conclude with dessert.

Sometimes they resemble more gastronomic fare, with chef’s surprise courses added along the way.

A 20-something first-time buyer borrowing over a 25-year term will probably move within five years and take the same again.

This second purchase lengthens their mortgage repayment period to what could then be effectively a 30-year term.

Most buyers seem content to repeat this process ad infinitum, or at least until they are around 40 years old.

At this point, more financially aware people begin considering linking their mortgage term to their retirement age – typically 65.

But the aggregate of successive mortgage terms invariably means that for many people reaching the age of 65, their time as a borrower has already totalled more than 40 years.

Hence my contention that the 25-year term is an illusory norm and that there is nothing new or radical about lengthy loans.

However, the mortgage landscape is changing. And two factors that influence mortgages are combining to create an environment in which 50-year terms could become the norm. First, house prices have rocketed, requiring many would-be home owners to seek mortgages well beyond the borrowing potential suggested by traditional income formulae.

Second, to meet this demand, lenders are encouraging borrowers to commit to loans far greater than their in-comes seem able to support over standard 25year terms.

So as an alternative to penury, why not extend mortgage terms to reduce monthly costs – to infinity if necessary – if this enables home owners to better afford their monthly repayments out of net income?

As our society no longer seems to recognise the word restraint and affordability has simply become a euphemism for reckless excess, maybe a loan for life is the only sensible way forward. And it comes with Inheritance Tax advantages too.

Repaying mortgage debt as quickly as possible obviously makes financial sense. And doubling a mortgage term pretty much triples what has to be paid back.

But what makes for fiscal prudence and what punters choose to do rarely make comfortable bedfellows.

And with the retirement age now another moveable feast, perhaps there’s no longer any need for borrowers to consider their 65th birthday as the target date by which all debts should be cleared.

What’s more, if leaving your mortgage to your kids keeps your head above water through to the petit fours, coffee and brandy of your life, why not? The little sods probably kept you on bread and scrape for most of it anyway.

Recommended

Nationwide hits back at edeus ads

Nationwide has hit back at edeus for flaunting the mantra ‘Screw branches, not brokers’ in its latest advertising campaign.

Beacon launches into Right to Buy

Beacon Homeloans has launched into the Right to Buy sector.Its new range consists of products from near prime through to Fasttrack. It also allows applicants to borrow up to 90% of the open market value of the property (maximum 80% for flats) with a maximum of 1,000 CCJs per applicant. For those applicants looking for […]

propertyfinder.com teams up with Virgin

propertyfinder.com is to supply Virgin Media broadband customers with an exclusive property search capability. The agreement with Virgin Media means propertyfinder.com has added to its online portfolio, already being the official property portal for AOL, MSN, Yahoo and Tiscali.Warren Bright, chief executive of propertyfinder.com, says: Our partnership with Virgin Media is further proof of the […]

It’s time for brokers to get behind HIPs

There comes a time when, however passionate you are that your argument is right, you have to accept the views of others and move on to work within a new framework.

UK: mid-year review and outlook

By Mark Martin, manager of the Neptune UK Mid Cap Fund, and Scott MacLennan, manager of the Neptune UK Opportunities Fund H1 2014• Equity markets continued to show strength: despite a strong rally in 2013 driven by a market-wide re-rating, equity markets continued to generate positive returns for investors. Economic activity continued to be stimulated […]

Newsletter

News and expert analysis straight to your inbox

Sign up