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Read more articles in: Blog, Elizabeth Jennings, Property

Cautious welcome for Government’s 50-year mortgage proposal

The Government’s idea of exploring 50-year mortgages has received a cautious welcome, but some property professionals have highlighted potential pitfalls.

The scheme is aimed to tackle the housing crisis with inter-generational loans, which would allow more people to build up equity rather than pay rent.

Figures show that in England, people in full-time work need to spend an average of 9.1 times their annual earnings to purchase a home.

Potential mortgage providers say the move would allow borrowers to borrow eight times their incomes, rather than the current average of 3.2 times their current wage.

The extended mortgage period would allow people to borrow larger sums, with the possibility of passing the debt on.

In the UK, relatively long mortgages are already the most common. According to the Building Societies Association, 37 per cent of first-time buyers took out mortgages of between 30 and 35 years, with only 10 per cent opting for less than 20 years.

How would it work?

  • It is likely that 50-year mortgages are never paid off over the full term and are typically only used as a cash-flow tool
  • The longer loan would mean lower monthly payments, but having to pay more in interest, while the equity build-up is slower
  • There are fears of saddling younger relatives with debt, but the property could be sold at a profit to pay off the mortgage. A complication could be that when a property or mortgage is passed on to children, inheritance tax could be liable. So, check with your accountant.

The idea is not new with multi-decade mortgages pioneered in Japan where 100-year family mortgages are offered.

Fears of keeping prices artificially high

Rob Gill, the Managing Director of Altura Mortgage Finance, said in a report in the Guardian newspaper, that if the plan did open up the market to more first-time buyers, this would have the effect of keeping property prices artificially high.

“It seems Governments the world over will do anything to avoid the alternative of property prices actually falling,” he said.

Freeing up Government-owned land for rapid building, with institutions like schools building homes for key workers priced out of their local area, is another project being considered.

For help and advice on matters relating to the residential property sector, contact our expert team today.

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