Forty-year mortgages that may take two generations to pay off could vastly improve the affordability for borrowers and stimulate growth in the housing market, according to Armistead Property, a leading property investment firm.
Recent discussions by cabinet ministers concluded that multi-generational mortgages could be the norm in the not too distant future, in line with a cultural shift, which means people are increasingly comfortable with extended loans.
In future, householders could choose to pass on a house with an outstanding mortgage to their children, who will pay off the rest. Future householders may choose to pass on a house with an outstanding mortgage to their children, who will pay off the rest.
Already, there is evidence that people are opting for longer mortgages with first-time home buyers are taking out average mortgage terms of between 27 and 30 years.
Peter Armistead, Director of Armistead Property comments: “Rising house prices will prompt more homebuyers to abandon traditional 25-year loans and opt for ever longer repayment terms. The cost of property means that spreading out repayments over longer periods may enable many families who would not otherwise have been able to afford it to get a step on the housing ladder.
“In Japan, the 40-year mortgage is the norm, Paying it off is a two-generation job for many families. If house prices remain high, longer-term mortgages like those will become more acceptable to people in the UK. As people work into their late 60s and 70s, with the state pension age set to rise, many workers will be in a position to make mortgage payments over a longer period.
“It is up to mortgage lenders to make more mortgages available, that suit today’s market needs. This means affordable and accessible to all and on all types of property. Stimulation of the new build...
market is important to ease the housing shortage. Stimulation of people buying in general is what is needed for the banks and the housing market.
“Affordability is crucial for enabling those stuck living with parents to buy for the first time and those wishing to move or upgrade their home. Lowering interest rates is not an option as they are low at present, nor can exposing the bank to more capital risk through higher loan to values. So extending the terms is the most practical solution. The lenders benefit from longer interest producing periods and the buyers enjoy lower repayments, leaving enough from earnings for further consumer spending to help boost the wider economy.
“A 20 year old gaining a 40 year mortgage can still see the term finish within in their working life and would either have monthly payments reduced by approximately £150 a month, or be able to afford in the region of £30,000 more lending.”
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