Story for The Times: Mortgages - Larger, Longer, Later

When it comes to mortgage terms, the traditional 25 years that everyone would take out, has changed. These were traditionally linked to endowment policies which were held for 25 years. Nowadays, it is based around monthly affordability. Many people are extending the term to the maximum allowed, which is usually 40 years or up to the age of 70. There are some lenders that can go up to age 75, as long as the employment is feasible, i.e. receptions, office clerk, and not a builder. I don’t advise customers taking mortgages past retirement age as the pension income is going to be a lot less than current earnings, so the mortgage payments won’t be affordable. A lot of lenders have criteria in place that if the mortgage term goes beyond retirement age, pension income will need to be considered for affordability before they can say yes. It doesn’t usually work, so customers are safeguarded to some extent here. However, we do know plans can change and it’s advisable to continue speaking to your broker to get the best advice at each stage. What we are seeing though, are many first time buyers taking out mortgage terms of 30-40 years. This gives them the peace of mind for the lowest monthly payments they can have, but it does mean having the mortgage into their sixties, and paying a large amount of interest. This is also fueled by the fact that lenders tend to lend a little more when the term is extended so customers would opt for this.

Due to the high rates, I’m using longer terms to combat affordability with the hope this is short term. Should borrowers have sufficient retirement plans in place or lump sums, possibly from inheritance, then going above the age of 65 is more prevalent. Despite the warnings and nothing being guaranteed, this seems to be kicking the can down the road.

Ever-increasing mortgage terms are a symptom of our broken property market. Borrowers taking out 30-year-plus terms are common, though most lenders will use working income for affordability calculations up to age 70. After that, they'll want to see that your pension or retirement income can support the mortgage. The bottom line is, house prices are starting to fall, because the mortgage payments are becoming unaffordable at current levels. It's entirely possible they'll drop by 20% over the next couple of years, possibly more.

Clients wanting longer-term lending have, over time, become normal, especially among the younger and first-time buyers. This could be partly due to people previously wanting to have more disposable income to live a life vs being crippled with mortgage payments to get mortgage free early. With the rising interest rates, we're also likely to see older customers want to secure a mortgage deal which may take them in excess of their state retirement age. Our advice is always built around finding a term that fits around the customer's realistic income and expenditure as there will be no one-size-fits-all on how long a mortgage should be.

Depending on the clients' financial circumstances we are seeing longer mortgage terms to try and make repayments more manageable. It's predominately first-time buyers and those with families that are requesting longer terms as they get to grips with becoming homeowners and managing increasing costs across the board. If rates keep increasing, we may see more and more people long to add to their mortgage term until they can reduce the years back down.