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Stretch mortgages - your views wanted

ended 12. December 2022

A journalist at Thisismoney/MailOnline is looking to write a piece about the ‘stretch mortgage’ idea being pushed by the Chancellor. Basically it involves people 'temporarily' increasing their mortgage term to cut down repayment, as per this piece. Selection of Qs. No need to answer them all

  • Are you aware of any details about this?
  • Don't lenders already allow this when people remortgage? What factors determine how long a mortgage term lenders will offer normally?
  • Is this stretch plan to be allowed to people at any stage of their mortgage deal?
  • Can the Government actually make banks do this? They'll be nervous about taking on more risk at the moment
  • Will the 'stretch' just be for 25 up to 35 years? What if you already have a 30-year mortgage for example? 
  • How long would the term increase last and who decides when you start paying your normal amount again?
  • Would doing this impact your credit rating - or be visible to future lenders, as, for example, mortgage holidays were? 
  • Also, do you know what the chances are of people ever going back after changing their term? 
  • I'm pretty sure the evidence shows that when people take longer mortgages to cut monthly payments, ie when they move, they never then reduce them down.
  • Plus, wouldn't they have to do the whole underwriting process again?

8 responses from the Newspage community

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Elliott Culley
Director at Switch Mortgage Finance
The Chancellor met with mortgage lenders and the regulator last week. The FCA released guidance on forbearance measures lenders could use to help clients who are struggling. One measure was to allow contract variations including stretching a client's current mortgage term over a longer period. It will be in the lender's interest to consider extending a client's mortgage term where there are no other changes to the mortgage. Extending the term shouldn't require any affordability assessment unless it is being extended past the client's retirement age. Some clients are likely to get used to the new payment and will not positively elect to return to their previous term. Lenders must ensure clients are aware of the total interest they will pay as a result and encourage clients who can afford to stay on their existing terms to do so.
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Hannah Bashford
Director at Model Financial Solutions
What? This is already available. When advising a client, we look at their affordability and then determine what they can afford and tailor the term to that. If what's being suggested is that lenders can ignore an expected retirement age or need to prove retirement income to make sure the mortgage is affordable on a pension income, then maybe this will help some people but just as with the idea of people going interest-only for a short period, you are simply kicking the can down the road. There needs to be a robust plan in place for the future to make sure clients can catch up on these lower payments. I feel that 'stretchy mortgages' may be useful for some, but not everyone, and as always advice on the pros and cons of this scenario will be vital.
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Justin Moy
Managing Director at EHF Mortgages
Extending the term is an option when you are remortgaging to another lender, as per the ususal application process. For a lender to make an arrangement on an existing mortgage, it's in the same decision framework as swapping to interest-only for a period of time. All options are in scope where there is financial hardship of any kind. What happens to the individual's credit file is a question better answered by the lenders and regulators. We have seen a recent trend to 30-35yr mortgage terms for new mortgages, as clients are influenced more about the monthly payment than the term, as the latter can be changed in the future when affordability may be better.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Most lenders will allow customers to alter the terms of the mortgage if they are in financial difficulty. I believe the Government are saying they need to use even more discretion. I like the sound of this in principle, but lenders must ensure it's not being abused and storing up problems for down the road. If a customer is having genuine financial difficulty through loss of a job or a prolonged illness, then this is a great tool to have in the box. However, if a customer has seen their disposal income reduce, this shouldn't be used as that's exactly what the Bank of England wanted when they raised interest rates. For clients who this is right for, the process should be streamlined and it should not affect their credit rating, but this is down to the lender and they will make you aware.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
Lenders have always allowed borrowers to request increased mortgage terms, be it at the point of doing a remortgage or even as a mid-term amendment, and the term of the mortgage is something that advisers always discuss with their clients, adjusting the term up or down depending on the budget available. So, I'm struggling to see anything "new" here. Lenders will, usually with very little additional underwriting if you are extending the term (you are after all making the mortgage more affordable for yourself and so reducing the lenders' risk) and will allow you to extend to your intended retirement age; for many lenders, this is a maximum of 70, but some will allow until 75, some 80 and a couple 85 - it all depends on your occupation and the likelihood of you being able to continue to work to that age.
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Chris Sykes
Technical Director and Senior Mortgage Adviser at Private Finance
If staying with your current lender and wanting a no-stress product transfer, things like term cannot be adjusted, but if going to a new lender and remortgaging then it is a fresh application so they wouldn't usually query what your current term is and you are free to change it. How this would be helpful is if banks could be required or heavily encouraged to give this flexibility mid-term of a mortgage without the need for additional underwriting as this would be seen as a material change and usually require new underwriting. Some lenders do already offer these options.
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Gary Boakes
Director at Verve Financial
With the vast majority of clients already taking their mortgages to 70 years old, lenders are going to have to change their criteria if they are going to allow mortgages to be stretched past this age. Any term increases during a fixed rate period without your credit profile being affected, along with the idea of more interest-only, is potentially going to be invaluable for some families next year. It is going to be interesting to see whether lenders are happy with the potential increased risks. Innovation and education are the key. If we get past the fact mortgages need to paid off before we retire, then ideas like this will be embraced more.
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Graham Cox
Director at Bridging Hub
Many lenders only allow mortgage terms up to the eldest applicant's 70th birthday, though a few allow up to age 75. Beyond that, they'll want proof your pension/retirement income is sufficient to pay the mortgage. It wouldn't surprise me if the Government 'encourages' all lenders to go up to age 75. They seem to be huge fans of anything that encourages debt servitude and kicking the can down the road. Stretch mortgages are a sticking plaster and can help keep people who are struggling to meet their mortgage payments in their homes. But they're not a solution to our housing crisis. Much lower house prices are the long-term answer and are what we're now starting to see.