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Marathon Mortgages - the risks

ended 25. October 2023

The Evening Standard are running a piece on the rise of the marathon mortgage. They are looking for views from London-based brokers and property experts on what the risks are, and what the potential advantages are of ultra-long loans. Who are they suited to, and who should avoid them? Also, could a mis-selling scandal crop up in 10/20 years' time, e.g. if that family couldn't afford the loan over 20 years, why could they over 30 years? Any other thoughts, jot them down.

6 responses from the Newspage community

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Editor
Aaron Strutt
Product and Communications Director at Trinity Financial
Just because you sign up for a 35 or 40-year term doesn't mean you have to stick to it. Many borrowers are taking the longest possible terms to make their mortgages more affordable today, but they can reduce the term when they are in a better financial position. It is best to assess your finances when your rate is due to finish and you need to remortgage. Many banks and building societies offer borrowers more generous loan sizes and the lowest rates when they take a five-year fix, so extending the term isn't the only option to make mortgages affordable.
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Justin Moy
Managing Director at EHF Mortgages
'Marathon Mortgages' in many situations are only advised to help the borrower fit a lenders affordabilty calculation, and to calibrate the monthly payment to make it fit someones budget. Mortgage Brokers will be encouraging those with longer loans to reduce the term, overpay and re-look at their mortgage once rates return to some normality and overall affordabilty is improved. Just because a mortgage might be set up for 40 years, it doesn't mean it has to run that full term. With mortgage advice heavily regulated and full written reports confirming the advice provided, i don't see why there would be any mis-selling scandal when ultimately the reasons for these longer mortgage terms are driven by current market factors.
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Darryl Dhoffer
Founder at The Mortgage Geezer
With interest rates apparently near the top of the curve, consumers are having to make decisions on their wallets, which is seeing an increase in extending terms on many mortgages. Fortunately, most providers allow smaller fixed terms within this period, so if the interest rate market reduces, this will give opportunities to reduce their payments, or reduce the overall term and keep repayments in line with what they already pay - this is assuming clients make these decisions to reduce their term overall, and largely dependent on a reduced interest rate market in the future.
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Gary Bush
Financial Adviser at MortgageShop.com
Mortgage terms of 30 to 40 years initially to assist monthly budgets for younger borrowers don't do any harm as long as the longer-term goal is to work toward reducing this to a more usual 20/25 year term overall in time. Affordability is the number one reason for mortgage declines during 2023, due to the now higher fixed mortgage interest rates and the highest variable mortgage rates for over a decade. The hunger for home ownership in London is still very much active and working around the current situation, by using longer initial terms, is a valid route to assist this as long as borrowers understand that regular bi-annual/tri-annual reviews need to be in place with their financial advisers.
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Jamie Thompson
Mortgage Broker at Jamie Thompson Mortgages
A great example of sombody who might consider a "marthon mortgage," and a case I see a lot, are people currently doing a PhD. They may have a partner with a professional job and income to match but the PhD candidate receives funding in the form of a stipend of around £20,600 per year in the capital. Not many lenders will consider their income, but some do. I've helped many couples in this situation. They know that in 1 to 4 years when their PhD research ends they can expect a large increase in household income. Therefore we may do a 35 or 40 year mortgage now to keep the payment affordable, but know that when we come to remortgage in 2, 3, or 5 years' time their income is liekly to have doubled. At that time we can review and potnetially increase the monthly payment and reduce the mortgage term significantly. All while not having to pay rent for up to 4 years just because they chose to do a PhD.
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Ying Tan
CEO at Habito
Rising interest rates and rocketing rents have increased the demand for marathon mortgages. It is a practical solution to make monthly repayments more affordable. However a word of caution. Generally the shorter the term, the better as with marathon mortgages you can pay significantly more interest as the balance is reduced more slowly. It might suit someone who is expecting their income to increase over time, as long as the product allows overpayments penalty-free. Always speak to an advisor as everyone has different circumstances."