You are here: Home - Better Business - Business Skills -

PRA is being naïve on longer mortgages – Church

by: Shaun Church, director of Private Finance
  • 17/08/2017
  • 0
PRA is being naïve on longer mortgages – Church
There’s plenty of talk right now surrounding long-term mortgages and the dangers they present, with one regulator at the heart of the debate.

The Prudential Regulation Authority (PRA) sparked things off by hitting out against lenders for offering 35-year mortgages rather than the standard 25 years. It warned that doing so “increases the possibility that the final instalments may have to be met from post-retirement income”.

Such concerns seem to completely disregard the remortgage market, despite the fact that remortgage lending topped £65bn in 2017. The assumption that a 35-year-old who takes on a 35-year mortgage will never remortgage in that time to a shorter term is naive to say the least.



However, taking out a mortgage for over three decades is not the only way longer mortgages can be of use.

While longer term mortgages may be causing controversy, longer mortgage deals are proving to be advantageous for borrowers.

One of the big talking points in the industry over the last couple of years has been stress testing. Tighter regulation has meant lenders must now assess whether a borrower could still afford their mortgage if base rate rose by 3% above their current rate.

In the buy-to-let world of course we’re seeing stress test rates of 5.5% almost across the board.


Bypass stress tests

But perhaps it’s not widely known that fixing for a longer deal can actually help to bypass those stricter stress test rules.

This is certainly the case in buy-to-let where it’s common to have lower stress tests on five-year deals.

Indeed, the PRA rules that require lenders to stress test all new buy-to-let mortgages at a notional rate of 5.5% only applies to mortgages with terms of less than five years and much of the buy-to-let market is made up of two- and three-year fixes.

But it’s also happening in the residential sector with lenders able to offer larger loans on five-year fixed rate mortgages due to the same reduced stress testing.

Clearly tying in for that little bit longer has big benefits and with persistent talk of a rate rise – including warnings from Monetary Policy Committee member Michael Saunders that households should be prepared for higher rates – now might be a good time to do so.

There are 1 Comment(s)

You may also be interested in

Business Skills

In this section, we offer short ‘how to’ guides on harder to crack areas of business. From social media, to regulation or niche product areas, we cover it all.


Our journalists interview key industry entrepreneurs, strategists and commentators for day-to-day market insight and a strategic view of where the industry is heading. We offer lessons for success and explore the opportunities for your business

Success in Practice

Here, we share case studies fleshing out best practice to help you decide what could work for your business. Take a look at how others approached complex tasks like launching a new mortgage lender, advising on a new product area or deciding to specialise in another. Learn from others mistakes and triumphs.


Each week, we ask top mortgage and property commentators with a unique perspective to examine a key news headline, market move or regulatory or political issue.


Vote in our weekly poll here. It’s your chance to tell us what you think and be heard on the top news stories of the week. Review our archive to find out what your industry really thinks and all our coverage of the results.

Top Comments

Be part of the conversation on Mortgage Solutions. We want to hear from you. We have a tool called Disqus to tell us which stories get the most comments each week. Every Friday, the team picks the most thoughtful or opinionated contributions from our readers to enjoy again. Don’t forget to share your favourite stories from the site on social media to keep the conversation going.
  • RT @robjupp: Great day yesterday for donations to @MortSleepOut. With Gift Aid, we are now close to £17,000. It would be great to get to £2…

Read previous post:
A man hands over some keys
Cheapest ever BTL fixed-rate mortgage launched

The Post Office has launched the cheapest ever buy-to-let fixed rate mortgage deal.