50-year mortgages 'on the way'

Fewer buy-to-let deals could mean less pressure on housing stocks

Mortgages in the UK might have to double in length to 50 years if repayments are to remain within the reach of normal homebuyers, a leading mortgage broker has warned.

Days after the Halifax bank reported a 4.2% rise in house prices in a single month - making an annual rise of nearly 20% - Charcol said that the current 25-year mortgage is rapidly becoming impossible to repay.

Whether or not house price inflation moderates, Charcol said it is still overwhelmingly likely to stay ahead of wage inflation, which at the moment is below 5% a year.

As a result, the only way mortgages will remain affordable is by increasing the term to 30, 40 or even 50 years.

Dubious legacies

While the half-century mortgage may sound scary, Japan's ludicrously expensive property market is even more extreme.

There, near-zero interest rates have made little difference to the cost of housing, and some mortgages come with terms as long as 100 years.

Borrowers never in fact pay off the principal, leaving the property in the hands of the lender and the mortgage in the hands of the children.

Living longer

As far as the UK is concerned, Charcol points out that a longer mortgage in itself is not necessarily a bad thing.

It would force lenders to be more creative, offering more flexible terms and better rates, the company said.

And in any case, much has changed since the 25-year mortgage became the standard.

"The fact that people are living and working longer means that longer loan terms do not seem as drastic as they would have done 30 years ago, when life expectancy was considerably less," said Ray Boulger, Charcol's senior technical manager for mortgages.

For a repayment mortgage of £100,000 - the UK's current average house price is £107,152, according to Halifax - a 25-year term at 5% interest a year would cost £585 a month, Charcol said.

Over 30 years, that would fall to £537, while a 40-year deal would bring monthly payments down to £482.