• Visitors can check out the Forum FAQ by clicking this link. You have to register before you can post: click the REGISTER link above to proceed. To start viewing messages, select the forum that you want to visit from the selection below. View our Forum Privacy Policy.
  • Want to receive the latest contracting news and advice straight to your inbox? Sign up to the ContractorUK newsletter here. Every sign up will also be entered into a draw to WIN £100 Amazon vouchers!

Warning on higher cost of 40-year mortgages

Collapse
X
  •  
  • Filter
  • Time
  • Show
Clear All
new posts

    Warning on higher cost of 40-year mortgages

    Utter madness. They should really consider living in another part of the country, or leaving the country! Imagine surviving to your 72nd year working away before the mortgage is paid off.

    These guys should rent instead and wait until the mega crash.


    Warning on higher cost of 40-year mortgages - BBC News

    Warning on higher cost of 40-year mortgages

    Many people are opting for longer-term mortgages over a 40 year period
    First-time buyers are being warned they could pay tens of thousands of pounds more interest if they sign up for 40-year mortgages.

    Sales of longer-term mortgages have reached record levels, with most young buyers choosing to borrow for more than the traditional 25 years.

    The monthly repayments are smaller, so they can afford bigger loans to buy their dream homes.

    But one of the UK's biggest mortgage brokers says the interest bill can rocket, because buyers have to keep making payments for so long.

    Longer mortgage

    Fifteen years ago virtually every first-time buyer had a 25-year mortgage, but high prices have forced people to look for new ways to beat the market.

    Now 60% borrow for longer. The typical term is 30 years, but many are choosing terms of 35 or 40 years so they can take bigger steps onto the housing ladder.

    Chris Pearson, Katie Baynes and their children
    First-time buyers Chris Pearson and Katie Baynes could still be paying off their mortgage in their seventies
    "The short-term gain was more beneficial than the long term pain," says Chris Pearson, who has just bought a house with his partner Katie Baynes in Cheadle, Manchester.

    "We'd taken a long time saving for a deposit and we needed a house that was big enough."

    They have a 40-year mortgage from Nationwide and managed to borrow £300,000.

    "I think I'll be 72 when we've just paid it off," Chris admits.

    Extra interest

    It's clear what the attraction is. You pay £948 a month for a typical 25-year mortgage, but only £716 if you extend the term to 40 years.

    You make a saving of well over £200 a month.

    For Sale marketing boardsGetty Images
    Higher house prices have forced people to look for new ways to beat the market
    What's happening is that the interest paid each month stays the same but the repayments of capital, which form part of the monthly bill, are spread out over a longer period. That's the good news.

    The problem is that you have to pay interest for an extra 15 years. In this case you would pay an additional £60,000.

    Interest over 25 years adds up to around £84,000, but the total over 40 years is £144,000, a huge bill for borrowers.

    "It's a real danger," warns David Hollingworth from London & Country Mortgages, who calculated the figures. "They need to understand that they are going to pay thousands more in interest over the life of the mortgage."

    Construction workers build new housesGetty Images
    Now 60% of first-time buyers borrow for longer than the traditional 25-year term
    Katie and Chris say they are relying on house prices continuing to rise, to shore up their finances.

    "We're stuck in a rut really," Katie says. "We're taking a massive risk."

    Draining wealth

    Mortgage regulation has been tightened up, with stricter controls on what people can afford with their regular incomes.

    But there are no rules limiting the length of mortgage terms or stopping families who are already up against it from committing themselves for four decades.

    Effectively, these borrowers are putting off the day of reckoning and draining their future wealth.

    David Hollingworth
    Buyers will pay "thousands more" over the life of a 40-year mortgage, says London & Country's David Hollingworth
    David Hollingworth suggests they keep their mortgages under review and shorten the payback period as soon as they can afford to make higher payments.

    Such a strategy, he says, will "save them a fortune".

    But what if interest rates go up, making mortgages more expensive, or if the family income stays the same?

    Homeowners like Katie and Chris in Cheadle could find that the 40-year deal is all they can ever afford and their mortgage becomes a millstone in later life.
    "Never argue with stupid people, they will drag you down to their level and beat you with experience". Mark Twain

    #2
    Not a surprise. It's all about perceived affordability like those that can only afford brand new cars if they lease them for £200/month, or those that pay £30 a month for the latest iPhone iteration where spot the difference over the previous version would be a tough competition to win.

    They don't look or worry about the overall cost. Houses are going the same way.

    There are already pensioner mortgages becoming available, as those on a pension have a stable set income so seen as a lower risk. When they croak it the mortgage provider gets first dibs on the sale money.

    Next it will be inter-generation mortgages where the young will only be able to afford a mortgage by inheriting it from their parents.
    Maybe tomorrow, I'll want to settle down. Until tomorrow, I'll just keep moving on.

    Comment


      #3
      Originally posted by Hobosapien View Post
      ...

      Next it will be inter-generation mortgages where the young will only be able to afford a mortgage by inheriting it from their parents.
      Ah, the Swiss model.

      However, if your salary is less than 3x what the interest payments would be at 5% interest, you have to put a lump sum in to reduce the mortgage - or the bank will insist you sell.
      Down with racism. Long live miscegenation!

      Comment


        #4
        This comes up every few years.

        It was happening before 2007.

        Thanks to interest rate falls what people did was remortgage and shrink the term.

        Though unfortunately these people are hoping on a house price increase.....
        "You’re just a bad memory who doesn’t know when to go away" JR

        Comment


          #5
          Originally posted by NotAllThere View Post
          Ah, the Swiss model.


          And Japanese. You can get a 125 year mortgage there.
          …Maybe we ain’t that young anymore

          Comment


            #6
            House prices only ever increase. So what is the issue?

            Houses are not a ponzi scheme designed to make people job slaves. No Sir.

            Comment


              #7
              MUGs, simple as that
              The Chunt of Chunts.

              Comment


                #8
                Originally posted by BrilloPad View Post
                House prices only ever increase. So what is the issue?

                Houses are not a ponzi scheme designed to make people job slaves. No Sir.
                Even AtW realises that now finally...

                Comment


                  #9
                  After Brexit, house prices nationally will fall as the immigrants are sent home.

                  London prices will rise as it will still be a haven for illicit money.

                  Comment


                    #10
                    I didn't realise that the USA (and Switzerland) allow you to deduct the interest paid on your mortgage from your personal taxation.

                    https://en.wikipedia.org/wiki/Home_m...rest_deduction

                    That would have a major effect on pushing up prices, especially for higher earners.

                    Comment

                    Working...
                    X