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Last Updated: Wednesday, 8 November 2006, 13:57 GMT
40-year mortgages 'becoming norm'
A couple looking at a home
Dream home can virtually mean a lifetime mortgage commitment
Nearly a third of UK lenders now allow borrowers to take out a mortgage lasting for 40 years or longer, research has revealed.

MoneyExpert.com looked at the lending policy of 125 mortgage providers to see how many were sticking to the traditional 25-year term.

Fewer than one in four lenders offer a maximum 25-year mortgage, with 30% willing to lend for 40 years or more.

The research may reinforce fears that people are borrowing irresponsibly.

In recent years there has been a clear trend towards higher multiples, in some cases as much as 7.5 times annual salary

Two mortgage providers, Tesco Personal Finance and Abbey, offer a lending term of over 50 years, according to experts.

Sean Gardner, MoneyExpert chief executive, said that the lenders were reacting to high house prices.

"It makes sense that lenders are responding by offering greater flexibility to borrowers whether it is by allowing them to borrow more or by enabling them to spread payments over a longer time," Mr Gardner said.

"The old model of three times salary and a mortgage lasting 25 years maximum is on the way out," he added.

However, the group warned that people taking out a mortgage over a longer period of time would pay far more interest.

Lending phenomena

Last week, Abbey hit the headlines when it announced that it would offer some borrowers five times their salary, publicly abandoning the industry standard of lending between three and four times.

When the change was announced, debt charities said it would lead to borrowers becoming "very stretched".

But according to Ray Boulger, technical director at mortgage broker Charcol, the phenomena of so many lenders willing to loan larger amounts for longer periods of time reflects flexibility rather than irresponsibility.

"The average time that someone has a mortgage is three-and-a-half years, so the real question is not whether the term is 25, 40 or even 50 years but is the individual comfortable with their repayments and will they be able to pay back before retirement," he said.

"Remember people in their twenties today may not retire till their seventies so the scope is there for longer mortgages."

Abbey branch
Abbey are willing to lend five times salary

Mr Boulger added that the 25-year mortgage term was a relic of the 1980s, when mortgages were linked to the endowment investments.

Back then endowments ran for 25 years, as did mortgages.

Today, following a mis-selling scandal, very few endowment mortgages are sold.

"The 25-year standard is just a figure, no longer relevant in itself," he said.

On Thursday, the Bank of England is scheduled to announce the next move in UK interest rates.

Most analysts are forecasting that interest rates will go up, increasing mortgage repayment costs for millions of UK homeowners.


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