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PRA boss warns against trend for longer-term mortgages


Prudential Regulation Authority chief executive Sam Woods has warned against 35-year mortgages as part of a wider criticism of lenders not complying with the “spirit” of regulation.

Woods said the Mortgage Market Review “rightly put affordability at the heart of mortgage lending decisions” but that “as with any rules or regulations, complying with the spirit as well as the letter of the law is important”.

He made the claims in a speech due to be given to the Building Societies Association in May but delayed until yesterday due to the snap election.

The PRA chief used the shift towards longer-term mortgages as an example of how the regulator thought lenders were playing around the edges of the rules.

He says: “By way of example, I would highlight a recent trend in increasing loan terms: where 25 years might once have been the normal maximum term for a mortgage, now 35 years or even longer seems to be increasingly common.”

Woods says increasing the term cuts monthly instalment amounts but also increases the amount of interest paid over the life of the loan.

He adds that this “increases the possibility that the final instalments may have to be met from post-retirement income.

“That should not be a problem if lenders can be confident about the availability of such retirement income, or about the scope for the borrower to downsize and use the sale proceeds to pay off the balance of the loan.

“But if lenders become too narrowly pre-occupied with the profile of the loan in the first five years (in line with MMR affordability rules), this could store up a problem for the future.”

Woods warned that this, and other, behaviour may conflict with the guidance for building societies laid out in the regulator’s sourcebook.

As a result the PRA has updated the sourcebook with new expectations on lending into retirement.

Woods also added that the PRA had noted some building societies were “searching for yield by creeping up the risk curve in prime residential mortgages”.

He said lending at LTVs of more than 90 per cent increased to 4.5 per cent of new lending in Q4 2016, from 2.8 per cent in Q4 2015.

Woods added that most building societies have mortgage indemnity insurance, to hedge against higher-LTV lending risk.

But he said the issue was broader than just mutuals: “I should make clear that I am not unduly focusing on building societies in making these examples -what we are seeing is a market-wide trend.”



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  • Carl McGovern 12th July 2017 at 1:44 pm

    It would be nice if Sam read these comments from Mortgage professionals and acknowledged that he has got this wrong. When a client approaches a broker for a Mortgage and is looking to maximise his borrowing, what is wrong with choosing a term to fit the clients and the lenders affordability? As suggested in this comments section people can and will overpay. Add to that, increased future Income, inheritance and other significant spikes in income/ capital and very few of these 35 year terms, will really run for that long.

  • Dan McGeehan 12th July 2017 at 9:51 am

    I wonder if Sam Woods even knows the average age of those taking out 35 year mortgages? Considering retirement age is around 67 now taking a 35 year mortgage up yo your early 30’s would still see it paid off. I have in the past arranged mortgages for clients over 30 or 35 years and on review at the end of the deal a number of these clients have reduced the term. You cannot get a 35 year residential mortgage for a 50 year old with the odd exception. Regulators are like politicians….out of touch with ordinary people.

  • Bill Keighley 12th July 2017 at 9:42 am

    I see that he is concerned that people are storing up potential problems doing 35yr terms when rates have never been lower but all the previous broker comments are spot on. I am concerned that we have someone in the PRA who only sees one side of things. Would he prefer that people rented instead? Oh, that market is shrinking, thanks to Govt. policy too. They would be paying rent from post-retirement income too so what’s the difference? Given the change to the affordability stress tests and stamp duty changes, the market has slowed markedly anyway, so why add more restrictions on?

  • Ian Brighton 11th July 2017 at 8:30 pm

    What a clever chap Sam, “increasing the term cuts monthly instalment amounts but also increases the amount of interest paid over the life of the loan” – that must be why you are Chief Executive. I think lenders and brokers make this perfectly clear to those borrowers who are struggling to get onto the property ladder, especially where their only means of ensuring the loan is affordable is by extending the term of the mortgage. Given the affordability calculations and interest rate stress testing that is now involved post MMR, borrower’s ability to service their mortgage repayments are much more robust. As such so long as the loan is affordable, the customer knows the additional amount of interest they would be paying and the lender is taking into account future income levels should the term extend beyond State Pension Age then what is the issue, like Karen mentions in an earlier post the flexibility that lenders provide in respect of overpayments etc. etc. allows borrowers to effectively reduce the term if they are in a position to do so. It is about time that the Regulator spent time at the coalface understanding real people’s issues and realising that if the UK wants a strong economy it needs to support lenders to lend, to ensure a sensible, but healthy, vibrant, housing and mortgage market.

  • Karen Guler 11th July 2017 at 5:09 pm

    This is a total nonsense in my opinion. I really do not think our consumers would opt for a longer term unless there is no reason to and as a broker I always explain in detail what the implications are but largely there are usually good reasons for a borrower to request a longer term. As for the lenders, most of the products out there allow for over payments so it allows borrowers to reduce the interest and term and therefore gives them better control of their finances. Particularly pertinent with our economy the way it is. I think the PRA need to get in the real world, that’s assuming that there still needs to be a housing market !!

  • JoeBlack 11th July 2017 at 4:34 pm

    Coming from the same people that caused it in the first place..give me strength! Lets rack up the restrictions in case we have another melt down that came from the US and that we didn’t see coming from a mile away…seriously!

  • Chris Batten 11th July 2017 at 3:35 pm

    Maybe I see the world differently to most. A longer term minimises monthly payments on a repayment mortgage (thus enabling borrowers to cope with cash flow better during times of hardship) but maintains the ability to overpay (offered by almost all lenders) to reduce the term / interest payable as cash flow allows. Alternatively, commit to shorter terms / higher payments and stand a greater chance of being unable to pay when life throws a curve ball at you with the resulting bad credit and subsequent consequences. Many shorter term, interest only loans are now ending with the changes in regulation basically making the borrowers homeless as lenders show little flexibility in extending. I expect that those borrowers now wish they’d taken a longer term from outset. Add to that the fact that the term on a mortgage is largely hypothetical as most move home multiple times during their lives and shorter terms just don’t make sense. Sorry Sam but your mathematics may be correct but your “real world” radar needs adjusting.

  • Chris Hulme 11th July 2017 at 2:43 pm

    Surely longer term mortgages were a predictable outcome of MMR? That was the whole essence of looking at younger borrowers being able to “afford” more (and older borrowers, less) in relation to the term over which they have left in work. We do however see affordability models pushing clients’ into longer terms than their own chosen comfortable budgets would indicate…. and that is not an ideal consumer outcome!

  • Anthony Peters 11th July 2017 at 2:28 pm

    Coming from a guy who has never struggled for a penny in his entire life.


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