30-year plus mortgages - are they a good thing?

I am seeing a lot of demand for longer term mortgages (35 Years +) especially for young first time buyers due to the rise in interest rates. Buyers are keen to get on the property ladder but put all of their disposable income towards their mortgage - they still want to have disposable income to enjoy themselves. My personal opinion is that it is more important to have a mortgage that is affordable and if this means stretching the term out then so be it. A longer term on your mortgage is still better than renting, there is still an end in sight whereas there isn't with renting and you will always be paying it. We as brokers just need to ensure that it will be affordable in later life and follow the same preocedures for this as we have now. It shouldn't make much difference.

50 year mortgages are a regulatory nightmare. Unless someone is 18 you're generally advising lending into retirement so in essence we have a lender whose USP is going to cause an issue with sales quality. If someone can't afford a mortgage over a 35 year term are we really giving the right advice by setting them up with a deal that they may not be able to afford?

I certainly feel that longer terms are needed. At the moment the majority of lenders only lend to age 70, which is also an issue as most of us will likely be older than that when we eventually retire. I currently see no reason not to go to age 75. Whilst the interest payable will be higher on a longer term, the monthly payment is what most people are concerned with.

Headline grabbing but practically unrecommendable in real life. My kitchen is full of useful gadgets that were "must buys", now they spend their days collecting dust on my shelves - much like a 30 or 50 year mortgage deal will do for brokers. Instead, the short term fixed, and variable rates will remain the popular choice. Why? For a start to take out a long term fix you need to consider if the term will go beyond your anticipated retirement date. If it does, how will you afford the repayments when most people see a significant drop off in household income in retirement? Or is it in danger of becoming an equity release scheme? So if you rule out borrowing into retirement, you only allow for younger borrowers. The average age for a first time buyer is now 32 according to the Halifax. This means that first time buyers or there abouts may be the target market. How many first time buyers stay in their first home for the rest of their working lives? And if you do wish to move home you are looking at typically hefty early repayment penalties - wo betide any mortgage adviser who recommends these to young buyers, as I suspect your insurance provider may not be too happy with the long term risk you are passing to them. Unless we amend the rules regarding mortgage advice to allow for family mortgages such as those we see in other countries, the longer term mortgage will be relegated to sit alongside my multi slice spiraliser!

There is scant detail on Perenna's offering, but to receive PRA and FCA approval they will have had to demonstrate appropriate customer outcomes and a market for their offering. Their main premiss appears to be a term fixed rate which has not proved popular, however, attitudes may change as the interest rate environment begins to reflect its historic activity. Personally, rather than shooting down a new, authorised lender I will wish them well and applaud evolution. Of course, the devil will be in the detail.

My response to the 2nd paragraph: I think this is very much a good thing to offer, advantages are great such as increased affordability as the mortgage will be spread over a longer period to reduce monthly payments so borrowers can borrow more on day 1 and are more likely to keep up with their smaller mortgage payments and not default. I am always seeing borrowers wanting the maximum term they can acquire so I think this will be very popular. I think some will say a drawback is that clients will have this mortgage going into their pension age but realistically pension age is only going up. Its already at 68 and is financially beeficial for people to be able to access a mortgage now and have this being paid into retirement rather than never buy and have to deal with paying extortionate rental payment whilst they are retired. For question #1: Long term deals appeal to everyone, especially those borrowers who are looking to get the maximum amount of lending. Even with older borrowers they are usually keen to borrow more and have the term go past their retirement age as they know they can always refinance and decrease the term as they grow older and their financial situation becomes more favourable. For question #2: Yes absolutely this will appeal to many borrowers, you just have to think about how many borrowers and lenders jumped at the idea of 30 and 40 year terms and the vast number of those now being offered, This is definitely going to be a competitive market. For question #3: Potential savings in monthly costs mean clients can instead use their now surplus income to pay off more credit cards loans ect (or just not have to use those higher interest rate options). Potential extra costs are of course the cost of interest payable over the extended term however I find many are not worried about this as its affordable in the long and short term and a worthwhile spend of money. For question #4: Regulatory issues could occur with mortgage terms going into retirement however this still happens now with 20 year terms, if you are 50 and want a 20 year term this will take you into retirement but lender still offer them. Its likely that the lenders will ensure the mortgage is payable into retirement however this can be hard to view if someone is 30 years away from retiring. Some lenders at present do this by only factoring in the affordability into retirement if this is less than 10 years away but if not they just like to see a client is paying into a pension. For question #5: This is a difficult one to say as its really 50/50 between those wanting 5 year+ fixes to ensure they are not stung by rate rises vs those who think rates are almost at their highest now so want a 2 year fixed as they can see rates going down again in 2 years. Both sides hold very strong views and I think lenders see this too. We have seen a few more lenders offering 10 year fixes but nothing substantial.

Currently, many lenders offer a 40-year maximum mortgage term, so extending this to 50 is not a huge move, from a lender perspective. In terms of borrowers, as long as lenders maintain their current rules around lending into retirement then a shift to a 50-year term would give some extra comfort to borrowers - most 20-somethings that I am speaking to currently can't see themselves retiring until 70 or 75 anyway, so a mortgage term to that age fits with their financial plans. However, whilst technically a 50-year mortgage is not huge shift, it does send out the wrong message; it says that we're more interested in helping you get into even more debt, than tackling the shortage of property that is the root cause of the much of the UK's persistent house price inflation.

Since the Bank of England started to increase interest rates, my firm has seen a greater demand for longer-term mortgages, and this is especially the case with remortgage applications. We have seen clients wanting to keep their mortgage costs to the minimum possible so that they can have the budget to pay for the increased utility costs and general living costs, and at the same time be able to save something for a rainy day. This is in addition to having the money to pay for protection costs to protect the mortgage debt. In terms of products, we have been recommending five-year fixed rates more than two-year fixed rates, and this has been due to clients being apprehensive about shorter-term fixed rates and potentially having increased mortgage costs again too soon. So, with a five-year fixed, they have the peace of mind knowing that this large mortgage payment will not change for the next five years. What helps with this, is that with most lenders there is very little difference between the two-year fixed and five-year fixed, so the borrowers are happy to pay slightly extra for that peace of mind. The type of borrowers that I have seen this with, has been mostly those under 35s. It is this demographic that has not experienced higher rates. One couple, for example, currently pays £800 per month for their mortgage and their rate is coming to an end in a few months. If they did the remortgage without increasing their term, it meant a payment of just under £1,000 per month, and this is keeping the borrowing the same. However, due to their priority of wanting the mortgage payment to be kept at £800, so they can live comfortably and save, the recommended term was a 30 year term, which was an increase to their previous term, but it still finishes before their retirement. They would much rather have the lower monthly payments and then potentially overpay if they can in the future. I feel this will be common as more people are coming off the ultra-low rates that borrowers have been on the last few years. The big issue that this could lead to, is mortgages that are being recommended into retirement or past the age of 70. Mortgage networks do have strict compliance procedures in place when recommending such a term. However, if the job is plausible to do after age 70, the borrower is paying into some sort of pension and they are more than 10 years away from retirement, then currently, that is good enough for compliance and the lender. However, I would not be surprised if the FCA took a stricter approach on this in the future, much like they have with Equity Release and debt consolidation.

Longer term mortgages, over 30 years, have been around for quite a while now. They are popular with younger first-time buyers, as they look to keep the monthly payments within their budget. However, with more and more lenders allowing mortgages to run up to age 75, it isn’t just young first-time buyers that have taken advantage of longer terms. Until recently, the maximum term readily available has been 40 years, but we don’t see many borrowers taking terms much over 35 years. I’m not sure a 50-year term will prove to be particularly popular, and it will remain a niche product. One of the main issues with a 50-year term will be how the lender deals with the term running past the borrower’s retirement age. They may look to take projected pension into account, as lenders do at the moment, but if they are looking at borrowers in their 20s, this may prove difficult. Including pension projections into the affordability calculator could cause affordability issues, however I would expect the lenders offering these deals to us the same criteria as some lenders do at the moment, in that they will continue to use just the current employed income providing that there is a pension provision in place, so they will simply require evidence that the applicant is paying into a pension, either through their employer or a private pension scheme. Whilst the obvious advantage of extending the mortgage term is reducing the monthly payments, this has to be weighed against the disadvantage of the increase in interest costs over the term, which will mean that the total cost of the mortgage will be significantly higher overall. The key to longer terms at the moment is to have regular reviews of your budget and look to reduce the mortgage term whenever your budget will allow. This can be done through a remortgage over a shorter term when the current mortgage deal (e.g., fixed rate) ends or by using overpayments throughout the mortgage. The majority of mortgage deals will allow you to repay an extra 10% of the balance each year without penalty and this is always a good facility to use if you can manage it. We have seen increases in clients asking about longer-term fixed rates and there is certainly an increased number of clients wanting 5-year fixes over 2-year deals. As well as providing longer stability of payments, one of the reasons for this is that 5-year fixed rates are very similar in cost to shorter term fixes at the moment. Traditionally, longer term fixed rates were higher, and we often talked about this being the cost of taking that extra stability, but that is no longer the case, and, in some cases, the 5-year fixed rates are actually slightly lower than the 2 years options. The important thing for borrowers to consider when deciding on a longer-term fixed rate, is the likelihood that they will want to change their mortgage during that fixed rate period. If there is any potential need to move home, borrow additional money or pay lump sums off the mortgage, it is vital that this is taken into consideration in the choice of mortgage product as early repayment charges can be as much as 5% of the mortgage balance on many fixed rate mortgages.