In recent years, as it has become more difficult to get onto the property ladder, the average age of first-time buyers has risen. Indeed, data reported by FTAdviser shows that the average Brit will be 34 when they buy their first home, which is an increase from 31 years old in 2002.
Now, the government has proposed 50-year mortgages, which it hopes will help more buyers to purchase the home of their dreams.
Is this a financially sound way of helping prospective home buyers? Or will it just saddle future generations with debt? Before we look at the benefits and disadvantages of 50-year mortgages, here’s how they could work for you.
50-year mortgages will allow borrowers to obtain more and spread payments over a longer period
The new proposed long-term mortgages would last 50 years and could help potential borrowers obtain up to eight times their income for a mortgage, rather than the current three or four times.
Figures reported by the Guardian show that, currently, the longest-term mortgage you can get is between 30 to 35 years, though the average mortgage length is 29 years.
The government hopes that the introduction of 50-year mortgages could help first-time buyers get a leg up and purchase homes they previously wouldn’t be able to afford. This is because spreading repayments over a longer term brings down the monthly cost, making them more accessible to new buyers.
Even though more will need to be paid back over a longer period, these repayments may be more sustainable than the high payments renters are already paying.
Indeed, the Office for National Statistics reports that private rental prices paid by tenants rose by an average of 3% in the 12 months leading to June 2022.
It is unlikely that a long-term mortgage could be paid off within a borrower’s lifetime – as such, these proposed 50-year mortgages are transferrable to other properties and could even be passed on to your next of kin when you die.
50-year mortgages could help buyers spread out monthly mortgage repayments
Since repayments are spread out, one of the most beneficial factors of 50-year mortgages is the lower monthly repayment amounts.
For example, official government data states that the average house price in London in March 2022 was £523,666.
Using the Money Helper mortgage calculator, if a first-time buyer were to borrow 90% of this – equivalent to £471,299 – using a 25-year repayment mortgage at an interest rate of 4%, they would pay £2,488 a month.
Meanwhile, if a first-time buyer were to purchase the same property on a 50-year mortgage at the same interest rate, they would pay £1,818 each month.
This could be a boon to first-time buyers, as they would have more disposable income each month to spend on essentials.
These long-term mortgages could artificially drive up house prices
It’s worth remembering that, while the monthly repayments will be lower, the total amount repaid over the term will be significantly higher with a 50-year mortgage than with a 25-year mortgage.
Also, even though 50-year mortgages could help first-time buyers get on the property ladder and purchase the home of their dreams, some experts have stated that long-term mortgages may not be the solution to the ongoing problems facing younger buyers.
For example, having more people on the property ladder still doesn’t fix the shortfall in house building. The Guardian reports that around 340,000 new homes are needed each year in England to solve the housing crisis, and only 216,000 were built in 2019/20.
This is why some people see 50-year mortgages as a temporary fix for a more serious situation.
In fact, the introduction of 50-year mortgages may even drive up demand for houses since more first-time buyers would be able to afford a home, and this may only push up house prices further.
Also, as previously mentioned, these long-term mortgages may run the risk of saddling children with excessive debt. Since these long-term mortgages pass onto your next of kin when you die, there’s no real way of telling whether the loan will be affordable for them in the future.
Your next of kin could end up inheriting a property that is a liability to them and repayments that they’re unable to manage.
Get in touch
While 50-year mortgages aren’t yet available, if you are a first-time buyer and wish to discuss how you can get onto the property ladder with our help, please email us at enquire@london-money.co.uk or call (0207) 808 4120 to find out more.
Please note
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.