A housing market that has seen prices soar amid faltering supply is set to be blessed with 50-year mortgages. This is the latest in a string of “creative ideas” mooted by Boris Johnson and his Conservative government.
Amid Michael Gove’s review of mortgage finance, the government is looking to find ways to help renters – who could afford a mortgage if not for the current boundaries in place, such as the initial deposit and high monthly repayments – onto the housing ladder.
One solution is ultra-long mortgages. Asked if he was considering such measures, Johnson told reporters: “Yes, certainly.” He said:
“I do think there’s a lot more scope to help people with 95 per cent mortgages. There are quite a few products available now, which we’ve tried to encourage. But also we want to find all sorts of creative ways to help people into ownership.
Last year we had 400,000 first-time buyers. That’s a great number, we’re starting to turn the tide, but it is crucial for this government and for our overall economic story if those numbers continue to be strong.
We need young people to have the confidence, to have the deposits, the mortgage packages to be able to get into ownership. If you’re good enough to pay a lot in rent, we should find ways to help you to convert that into a mortgage.”
These ultra-long mortgages could be up to 50 years in length. Long mortgages are already common: according to the Building Societies Association, 37% of first-time buyers’ mortgages are 30-35 years in length, and only 10% take out a sub-20-year mortgage. The difference is, however, that the mooted 50-year mortgage would pass between generations.
The government is clearly willing to accept this prospect in order to get the current generation onto the housing ladder, but it is a daunting prospect nevertheless. Graham Taylor, MD of mortgage firm Hudson Rose, said:
“On the face of it, it seems like a great idea. But the problem remains that the loan would need to be affordable for all the original applicants and also the children who inherit it. Otherwise, the children could risk inheriting a liability they are unable to manage, which, when secured against your home, has catastrophic consequences.”
What’s more, it has been suggested that ultra-long mortgages and low-deposit mortgages will only serve to push house prices up and therefore push properties further out of reach for all prospective buyers. Lewis Shaw, founder of Shaw Financial Services, suggested that building houses and increasing wages is a more suitable solution:
“Allowing people to stretch further for longer would have the opposite effect of what younger people need; it would push house prices even higher, exacerbating our already dire problem. It would cause huge problems, not just in the property market, by reducing transaction levels but massive financial worries about the banking system’s safety.
We need houses to be built, and people need a pay rise. The government should stop with the dead cats and focus on the real issues rather than trying to grab headlines with this non-sensical policy that has no basis in reality.”
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