In an age where consumer debt is mounting, house prices are continuing to rise and the number of repossessions grows, to become mortgage-free appears to be affecting differing elements within the market.
Mike Fitzgerald, sales director at Brentchase Financial Services, says: “We’ve spotted a trend that when customers come in to review their arrangement after a discounted or capped rate mortgage, they are also asking how much their mortgage will be over a shorter period. I think this trend will grow, whereby peoples’ mentality is that they don’t want to have a mortgage round their necks for a long period of time.”
Of course, Fitzgerald also acknowledges that there is an opposite end to the scale, whereby people are taking out an interest only mortgage over 35-years. However, as more lenders begin to offer flexible overpayments as part of their deals, some of these customers are tending to pay off their loan in lump sums, thus reducing their overall interest as and when they have the means.
In a similar fashion, the mortgage world has begun to embrace the concept of offsetting savings against borrowing to reduce interest costs and so reducing the term of a mortgage.
Andy Moody, managing director at Loanoptions.co.uk, comments: “Over the last five years people have been more interested in flexible mortgages. I think consumers are more financially savvy these days about their finances from reading articles and watching programmes such as How to Pay Off Your Mortgage in One Year on Channel Four. I always encourage people to take a shorter term deal if it fits in with their financial flexibility.”
Lifestyle choices
While some intermediaries would agree the trend to become mortgage-free quickly is catching on, other brokers say they have seen no such inclination towards this trend.
On the contrary, Brian Murphy, lending manager at the Mortgage Advice Bureau, reflects that while historically more people were prepared to give up the non-essentials, nowadays people are less prepared to sacrifice their lifestyle.
Murphy says: “In recent times there has been a tendency for customers to opt for 30 or 35-year mortgages as it is the only way people can afford to make their loan repayments. The norm is 20 to 25 years and while people always have the intention of reducing their terms to a more traditional level, sometimes their circumstances will get in the way. We haven’t seen any evidence of people trying to reduce the length of their mortgage.”
Darren Pescod, managing director at The Mortgage Broker Limited, adds: “There has been an increase in the amount of clients looking to either increase their mortgage, extend their mortgage terms or move to interest only to keep costs down as household debt increases.”
A dept divide
Britain has always been divided by class and while owning your own home may have become a classless objective, perhaps the type of mortgage you have says more about your social standing than you would like to think.
As the financially savvy review their mortgages regularly to ensure they are on a competitive deal, the financially vulnerable struggle to make credit repayments, with many taking on debt they can ill afford.
Bob Sturges, director of communications at Money Partners, says: “This isn’t a black and white issue as consumers are exhibiting signs of polarisation in their attitudes toward debt.
“On the one hand, the demand for mortgages and secured loans remains high. This is evident by the fact that secured forms of borrowing now accounts for over £1 trillion of the total £1.23 trillion of personal debt in the UK. Much of this is attributable to homeowners making use of the accrued equity in their homes to repay more expensive unsecured debt, including personal loans and credit cards. Others continue to seek new mortgage borrowing to tap into the continuing popularity of property as an investment and lifestyle choice, or as a way of helping their children onto the property ladder.
“On the other hand, there is strong anecdotal evidence that many homeowners are keen to reduce or clear their mortgage debt at the earliest opportunity – hence the popularity of flexible products that allow penalty-free overpayments. Many in this group crave the financial liberation that being mortgage-free brings, and have little appetite for further borrowing.”
Should this trend to pay off your mortgage debt early begin to catch on, while on the other scale of things increasing numbers of borrowers continue to take out interest only mortgage loans over 35 years, we should perhaps congratulate the former on being so prudent. Everyone would like to be mortgage-free as soon as possible – it just all depends on how much it will cost.
