With the introduction of a 40-year mortgage term, MAB has raised concerns that people are stretching their long-term affordability and has published guidelines for those considering a 40-year mortgage plan.
Brian Murphy, lending manager at MAB, said extending the repayment term to 40 years could seriously harm the clients’ ability to repay the mortgage after the initial special rate period. He said: “Stretching a mortgage term to lower the payments is a risky business. It may never be the ‘right time’ to remortgage and take on higher payments which could leave a serious mortgage problem well into retirement. We always advise clients to keep mortgage repayments to as short a term as possible, to enable them to free up money for pre-retirement investments.” He added remaining on a 40-year term until the end would cost twice as much as a 25-year mortgage.
MAB guidelines for people taking out a 40-year mortgage include making sure borrowers are realistic about what they are able to afford in the future, which would allow them to remortgage to a shorter-term deal at the earliest opportunity. The guidelines also suggest considering alternative ways to buy the property, including taking a higher loan-to-value (LTV) or guarantor mortgage.
However Hugh Nichols, partner at Badbury Berkeley Mortgage Services, said: “I don’t think there would be much take up of a 40-year product. No-one ever looks at the total cost of a mortgage and they just want to get their property.”
He added putting first-time buyers on longer-term mortgage arrangements could, in fact, benefit them. “Many first-time buyers are just paying interest only. At least with a set repayment mortgage they are paying something back, which has to be a good thing.”
