You are here: Home - News -

The long and the short of it

  • 17/06/2002
  • 0
The depth of concern about the problems facing would-be homeowners, who have been kept off the prope...

The depth of concern about the problems facing would-be homeowners, who have been kept off the property ladder by spiralling prices, was illustrated recently when a story forecasting a move towards longer mortgage terms hit the front page of several national newspapers.

A leading broker, Charcol, suggested the UK could follow in the footsteps of Japan , where despite an interest rate of 0%, the cost of property was forcing buyers to opt for loans with terms as long as 100 years.

Although nobody is suggesting UK lenders will go to such extreme lengths as Japan, Charcol has stated loans with a 30,40 or even 50-year term could become more commonplace, as the reduced monthly payment could bring the cost of buying a home within reach for many borrowers.

In a climate where concern has already been voiced about lenders increasing LTVs and stretching income multiples, a move to longer-term borrowing does not seem sensible for borrowers that could already be pushed to the limit in terms of affordability.

Lending over a term as much as 40 or 50 years is not responsible.

There is no doubt many first-time buyers, anxious to own their own homes, will be blinded by the attractive repayments offered on longer-term deals. But when you do the maths, there is no way this can be in the best interests of the borrower.

Take a £100,000 loan with a rate of 5.25%. On a standard 25-year term the monthly repayment would be £600. Stretch that term to 40 years and the repayment becomes a lot more appealing at £498; stretch the term even further to 50 years and the borrower pays a rate of £471.

However, when you work out how much more borrowers pay in interest over the full term of the loan ‘ these deals become much less tempting. On that same 25-year loan the borrower pays a total £79,784 in interest ‘ a bitter pill to swallow as it is, but extend the loan to 40 years and the interest paid rises by £59,684 to a whopping £139,458.

The average first-time buyer is now 34 and in a society where individuals are making minimal provisions for their own retirement the last thing the mortgage industry should be doing is saddling borrowers with debts that will run into their retirement.


There are 0 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:
Brokers and packagers will drop out of market

Southern Pacific Mortgage Ltd (SPML) has said the size of both the broker and packager markets are s...