Credit, Collections & Insolvency News
Consumers have been warned that the housing affordability option offered by 40-year mortgages isn’t a solution and could actually create more problems.
High (and rising) house prices have recently prompted plenty of potential home affordability solutions, among them, a 40-year fixed mortgage launched by lender Habito.
Jinesh Vohra from Sprive.com says that given where prices currently sit, repaying debt over the current popular term of 25 years is unaffordable for a burgeoning number of people, even at rock bottom interest rates, and given people are living and working longer – why shouldn’t the mortgage term shift to accommodate these changes?
Vohra said “With 40-year mortgage terms being offered as standard by lenders, the traditional 25-year mortgage is becoming a thing of the past, especially when it comes to first time buyers.”
“Housing affordability is a tricky problem – and politicians are no doubt desperate for a solution that doesn’t simultaneously hurt those who already own a home.”
“But, moving to longer repayment terms isn’t part of that solution, in fact, I’d argue it creates more problems than it solves.”
“I would say that of course – I’m in the business of helping people get mortgage-free faster via Sprive – but I do that for good reason, and that is getting out of debt fast gives you options, while staying in it for life takes them away.
“The primary appeal of a longer-term is lower repayments, but the downside of that is you end up paying much more in interest over the course of that time period.”
“The current low-interest-rate environment should tell us all we need to know about how lower repayments affect most people’s behaviour. Sure, it gives them an opportunity to get ahead – but it also gives them an opportunity to be apathetic, stagnates their progress or simply borrow more – and that is the path many are and will likely choose for the future.
“We already have a problem with people going into retirement with mortgages. Only 73 per cent of people aged over 65 own their own home, with one in three aged between 35-45 choosing to rent compared to that of 20 years ago. Add to that the fact that most people have not saved enough to sustain them in retirement and it’s a grim picture.”
“As one of many nations now saddled with debt from the pandemic, more education needs to be directed at the home owners of the future who are excited about the options a 40-year mortgage gives them, without dampening their spirits of home ownership.”