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For junior Methuselahs: the 50-year home loan
As industry data revealed that mortgages are at their least affordable for over a decade, one company yesterday proposed an answer to the crisis hitting first-time buyers: a 50-year home loan.
The announcement that the Mortgage Lender, a specialist broker firm, is in talks with a lender about launching what has been dubbed a "half-century home loan", coincided with figures showing that interest rate rises have pushed up mortgage interest payments for first-time buyers to their highest levels since 1992.
The Council of Mortgage Lenders, which published the data, warned of more bad news to come. With the impact of May's interest rate rise still to be felt and talk this week of further rises, "many borrowers face higher costs in the coming months".
Some experts argue that sky-high property prices and longer life expectancy are making the standard mortgage model increasingly redundant. A growing number of lenders already offer mortgages equal to five or six times a homebuyer's salary.
The Mortgage Lender, which describes itself as a leading provider of loan and debt solutions for homeowners with "unusual or difficult" financial circumstances, said there was no reason why a mortgage should be restricted to "just 25 or 30 years".
Already, growing numbers of first-time buyers desperate to get on the housing ladder are being encouraged to tie themselves into mortgages lasting 35 to 40 years or more. By stretching the term of the loan, a lender is able to reduce the monthly payments, which can seem very attractive to those with tight finances. But there is a catch: though the borrowers' monthly outlay will be lower, by the time the deal comes to an end they will have paid out far more than if they had opted for a 25-year loan.
The 50-year deal could be launched in the next few months, and David Titmuss, Mortgage Lender's managing director, said it would be targeted towards the younger end of the market. It would mean people in their early 20s would be signing up to mortgages they may still be paying off when they are in their 70s.
One or two lenders, including Direct Line, allow mortgage terms of up to 52 years in certain situations, and Kent Reliance building society last year started selling a home loan that lasts so long it can be passed from parents to their offspring.
When it comes to stretching the length of a mortgage, Britain appears to be following in America's footsteps. Early last year a California-based company launched a 50-year deal that was dubbed "the Methuselah of mortgages".
An acute shortage of homes is exacerbating the affordability crisis. In a new report, the Royal Town Planning Institute claims that Britain's housebuilders control land with planning permission for homes totalling close to 14,000 acres, enough for 225,000 new homes.