Mortgages  

Number of longterm mortgages jumps 20-fold

Number of longterm mortgages jumps 20-fold

The number of residential mortgages approved with a term of more than 40 years has jumped 20-fold in just one year, new data has shown.

A Freedom of Information request, submitted by estate agent Ludlow Thompson, found that 3,483 mortgages were taken out with a lengthy 40-year term in 2018 — up from 162 in 2017.

The estate agent also found the number of mortgages approved with a term of 25 years or more had risen 10 per cent from 455,647 to 499,558 over the same time period.

Traditionally a standard mortgage ran for 25 years with payments expected to be completed by the time the borrower reached retirement.

According to Ludlow Thompson, the move towards longer-term mortgages can partly be put down to improvements in life expectancy and the fact consumers will now be expected to work for longer.

Figures from the ONS show that one in three of today’s newborns are expected to live past 100. Such predictions mean long-term mortgages are more financially viable for borrowers.

On top of this, the availability of 40-year plus mortgages allows borrowers to extend the period in which the loan is repaid to reduce the monthly payments.

The estate agent said this was particularly useful for first time-buyers to get on the property ladder.

The so-called ‘mortgage price war’ has also caused more banks to offer longer-term mortgages, according to Ludlow Thompson, as they react to the demand for lower monthly prices by providing longer term mortgages.

Data from Moneyfacts last month showed more than half of all residential mortgage products had a standard maximum mortgage term of 40 years.

Stephen Ludlow, chairman at Ludlow Thompson, said: "The huge increase in longer term mortgages is a much-needed addition of innovation to the mortgage market.

"It allows younger buyers to reduce their monthly mortgage payments and gives flexibility to older people who want to move but were previously locked out of much of the mortgage market."

Mr Ludlow said many people getting onto the ladder aged 30 expected to be working well into their 70s, meaning a stretched mortgage made sense.

Kay Ingram, director of public policy at LEBC, said the rise in longer-term mortgages was down to a mixture of consumers staying in education and training for longer, starting work at an older age and living longer alongside a tightening of affordability criteria.

The Financial Conduct Authority enforced stricter lending criteria in the Mortgage Market Review in 2014, meaning borrowers needed to prove more stringently they could afford the borrowed amount.

This led to borrowers in general needing larger deposits and higher loan-to-income ratios, she said.

Ms Ingram added that a potential future rise in interest rates could cause problems for borrowers with such long terms.

She said: "This could be complicated if interest rates rise in the future and this coincides with loss of earnings due to the automation of some jobs."

Nick Morrey, product technical manager at broker firm John Charcol, agreed. He added the borrower would not be able to extend their policy if it was already at the maximum term if interest rates rose and they struggled with payments.