“40 year home loans are fuelling house price surge” – NAPB

THE growth of 40-year mortgages is set to fuel further house price rises, a leading property group has warned.

According to research released last week more buyers in their 30s and 40s are being forced to take out mortgages over a 40-year term, rather than the traditional 25 years, to keep repayments affordable.

Moneyfacts research found six in 10 home loans now offer buyers the option of a 40-year term.

The National Association of Property Buyers say this is “storing up issues for the future”.

Spokesman Jonathan Rolande said: “Much like the ultra-low interest rates we’ve enjoyed for the last few years, long term mortgages are making property that bit more affordable for people, spreading repayment of the debt over 30 or even 40 years. Whilst this is helping people to afford their ideal home, it is further fuelling price rises and creating an issue for the future. Will buyers in their 30’s now really be happy to work well in to their 70’s to repay a mortgage taken all those years ago? Based on past performance, in 40 years prices could be 10x what they are now so the mortgage will seem very low, but what if prices don’t keep rising?”

Mr Rolande, a director of House Buy Fast, added: “Many owners may be forced to sell a much-loved family home before they want to, to repay the mortgage and allow retirement. I hope that buyers taking these on will overpay the mortgage whenever they can to eventually reduce the term – their distant, older self will be very grateful!
Mr Rolande’s comments come days after a warning that the next generation of pensioners face a housing timebomb as millions will fail to clear their mortgage before they retire, while those who cannot afford to buy will have to pay rent throughout their final years.
As house prices rocket, more buyers in their 30s and 40s are being forced to take out mortgages over a 40-year term, rather than the traditional 25 years, to keep repayments affordable.
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Six in 10 home loans now offer buyers the option of a 40-year term, according to Moneyfacts. However with the average first-time buyer now 34, such deals could run into their 70s. Halifax, Barclays, Santander and Nationwide all now offer 40-year terms, while NatWest and Virgin Money stretch to 35 years.

Someone who borrows £150,000 over 25 years at 2 per cent faces repayments of £635.78 a month, but stretching their mortgage term to 40 years reduces that to £454.24, saving £181.54 a month. However because they will repay the debt over an extra 15 years, total interest charges would shoot up from £40,734 to £68,035, an extra £27,301.
There is also expected to be a surge in the number of older people renting rather than owning in retirement, new research shows. One in three private rental properties are headed by somebody aged 45 or over, and this will jump to at least half by 2035, according to analysis on behalf of Paragon Bank.

The private rented sector will be getting older as many cannot afford to buy. Amy Norman, senior researcher at the Social Market Foundation, said: “We need to revisit our preconceptions about renting being the preserve of young, mobile households.” Older renters will want different types of properties, including accessible, ground-floor homes close to shops, transport links, health services and loved ones, Norman said.
Continuing to pay rent in retirement will be a burden on their finances, especially with pension incomes already squeezed.
Rents are rising sharply and this will further squeeze pensioners who rent rather than own. Coles added: “If you rent for life, you need to consider the toll this will take on your pension and make sure you’re building up enough savings to cover it.”
Yet renters typically have fewer pension savings than homeowners, Coles warned: “It’s going to be tough for many.”