"What the young generation need are much lower house prices, higher wages or both. Not more extend and pretend."
The Government has met with the Bank of England and mortgage lenders to discuss the wider roll-out of long-term fixed rate mortgages in the UK.
According to The Telegraph, Andrew Griffith, economic secretary to the Treasury, has met with other MPs, the Bank of England and lenders offering 40-year fixed mortgages to explore the 'Dutch-style' long term fixed rates and whether they could help more first-time buyers onto the property ladder.
Habito and Kensington have previously launched 40-year fixed rate mortgages in the UK market.
Griffith said he is “definitely interested” in the products, adding that "if a mortgage really is fixed [for the entire term] then the stress tests of affordability aren’t as relevant as there is no chance of payments rising".
Newspage asked brokers if 40-year mortgages are a good idea. The consensus appears to be not, with one saying it's “bonkers”, another that it's "dangerous for first-time buyers", a third saying “this is fiddling while Rome burns” and a fourth simply: “Not more extend and pretend”.
Darryl Dhoffer from The Mortgage Expert: "It's a bonkers idea and means more interest. With a 40-year mortgage, you'll be paying interest for a longer period. This means that you'll end up paying more interest overall. For example, if you take out a 40-year mortgage at 4% interest on a £200,000 loan, you'll pay £140,000 in interest over the life of the loan. If you take out a 30-year mortgage at the same interest rate, you'll pay £108,000 in interest. You'll build equity slower, too. With a 40-year loan, you'll be paying more of your monthly payment towards interest and less towards capital. This means that it will take you longer to build equity in your home. For example, after 10 years, you'll have only paid off about 20% of your loan with a 40-year mortgage. With a 30-year mortgage, you'll have paid off about 35% of your loan. You'll be more vulnerable to interest rate changes too: if interest rates reduce, you could be losing out on lower repayments if you are tied into a 40-year mortgage with high Early Repayment Charges."
Lewis Shaw, owner and mortgage expert at Shaw Financial Services: "This is a terrible idea and a knee-jerk reaction to a transient problem. More credit means higher house prices, which means home ownership becomes out of reach for even more aspiring first-time buyers. This doesn't solve the problem but would only exacerbate it. We don't have an issue with mortgages per se, we have an inflationary issue that will be fixed, and we have a problem with house prices completely detached from average wages. A 40-year fixed-rate mortgage does not improve the underlying causes of where we are. This is fiddling while Rome burns. The only way to sustainably help first-time buyers is to build more good quality affordable homes and to stimulate economic and wage growth without inflating property asset prices by wholesale root and branch reform of the property market. We need to move away from property speculation and start seeing bricks and mortar as what it's designed for, namely a place to live."
Graham Cox, founder at SelfEmployedMortgageHub.com: "Why stop at 40 years? Perhaps the term could be extended until death. That way, first-time buyer's can experience a lifetime of debt servitude and borrow even more, propping up house prices in perpetuity. What the young generation need are much lower house prices, higher wages or both. Not more extend and pretend."
Justin Moy, managing director at EHF Mortgages: "Anything much longer than five years would be dangerous for first-time buyers, typically this is one of the client types that suffer most from early redemption, so any longer-term products for this type of client are not going to be popular. Longer-term mortgages to aid affordability are going to be a feature of our market, but longer-term products will have limited appeal. It will need some exceptional product design to provide flexibility and reduced early repayment charges, which will make these products very expensive."
Riz Malik, founder and director at R3 Mortgages: "We should think about using long-term fixed rates, especially with recent events. But whether these rates work out or not really depends on how flexible they are. If they let people pay more than they have to, can be transferred, and don't have any serious limitations, then people might start using them. However, even though we've had long-term rates around for a while when rates were low, people never really used them much. Long-term fixed rates are not the solution to help first-time buyers in isolation."
Rob Gill, managing director at Altura Mortgage Finance: "Long-term fixed rates are commonplace in other countries and are surely an idea whose time has come in the UK. Crucially, such products have no penalties, making them highly flexible as well as providing security for both the lender and the borrower. The UK property market in general needs longer-term thinking and such fixed rates should be part of the solution."
Michelle Lawson, director and mortgage adviser at Lawson Financial: "As with all mortgages, some are right for some and not for others and different people have different thoughts and goals. This is the reason for the diverse options and choice available. As long as the applicants are aware that they are spreading the cost over a greater period of time and they will pay more in the long run, I don't see the harm. It is important that they discuss the implications and advantages. It is all about making your mortgage work for you too and nothing is or has to be forever."
