Longer Mortgage Terms and the Housing Market.

Readers Comment: Or, if lenders stop lending in the long term. In a normal world, as it becomes more and more difficult to buy, lenders will come up with more and more products to offset the difficulty of affording property. As that happens, prices will continue to climb. Making a mortgage term longer is a good example of a new product that can be extended to accommodate for the needs of an inflating property market.

To some extent I agree. There is no rule that house price / incomes ratios have to remain the same forever (as many believe). If a housing market has a shortage of new houses and rising number of households then house prices can increase above the long term average. One solution is getting longer term mortgages. I got a mortgage 6 times my salary because I didn’t want to rent for the rest of my life. One thing I did to make it affordable was to extend the mortgage term to 47 years (maximum possible). People will say it is irresponsible to get a mortgage 6 times your salary, but, it makes financial sense. The worst would be having to rent in Oxford when I retire. If rents continue to rise in line with inflation or higher, it would make retirement very uncomfortable. Getting a mortgage is a good investment for old age.

If long term house prices remain high people will look to getting different types of mortgages and longer mortgage terms are likely to become more common (Possibly with long term fixed rate mortgages)

Another thing that has happened is that first time buyers who can’t get on the property ladder have turned to their parents for help. e.g. borrowing money for a deposit. This is another way people have tried to circumnavigate the unaffordability of prices.

However, in the past few months the mortgage industry has been badly burnt with many mortgage deals being withdrawn due to the shortfall in available credit. In a way the problem stems from the US subprime fiasco, rather than a rapid rise in UK mortgage defaults. Nevertheless, mortgage products like 100% and interest only have fallen out of favour and in the current climate I can’t see them returning. However, longer mortgage terms are not risky unlike like 100% mortgages or interest only mortgages. They also offer mortgage lenders the opportunity to make more profit, because the total interest rate charged is much higher.

Related 

Extend Mortgage Term 

Increasing Mortgage term to 47 years