The eye watering cost of a 50 year mortgage revealed

Research by estate and lettings agent, Barrows and Forrester, has revealed the eye-watering sums of interest that homebuyers could be facing, should they buy into the government’s latest plans to ‘help homebuyers’ by offering them a 50 year mortgage.

Before his long overdue fall from grace, Boris Johnson’s government announced they were currently considering ‘ultra-long mortgages’ as a ‘creative way’ to help hard pressed homebuyers negotiate the ever increasing cost of purchasing a property.

Barrows and Forrester has taken a look at what this could look like when it comes to the interest paid over a 50 year term for a buyer in today’s market.

Working on the basis of a 75% loan to value, the average UK homebuyer today needs to borrow £210,872 once a 25% deposit (£70,290) has been placed.

Currently, the only mortgage product similar to the government’s 50 year proposal is a 40 year term offered by the likes of Habito.

With an average fixed rate of 6.19%, this would require a monthly repayment to the tune of £1,140, a whopping £1,088 of which would be interest paid on the loan.

Over a 50 year term, this means a homebuyer opting for a 50 year mortgage would pay a total of £472,984 in interest alone – over double what they initially borrowed.

This climbs to £683,855 when considering the total cost of the loan and when factoring in the 25% deposit, it would place the cost of homeownership at £754,145 – almost three times the original value of the property.

But could it be worth it in the long run?

Based on historic house price data and price forecasting, Barrows and Forrester estimates that the average UK property could be worth £541,555 in 2072. So at first glance, the answer would be no.

However, when factoring in historic inflation rates and also forecasting inflation going forward, this average property value could climb to almost £2.3m, meaning that even when paying through the years on a 50 year mortgage term, you could still see a healthy return on your investment when it is finally paid off.

James Forrester, Managing Director of Barrows and Forrester, commented:

“There’s certainly nothing creative about the government’s manipulation of the housing market. Their failure to build more homes while consistently introducing schemes to boost buyer demand has caused house prices to climb to record highs.

Now they’re considering snaring buyers into 50 year mortgage terms, a move that plays on the desperation of many to own their own home, who simply can’t contend with the high price of buying in today’s market.

In doing so, these buyers would essentially be stuck renting from the bank well into their golden years, paying exuberant levels of interest for the pleasure of doing so.”