Here comes the 40-year mortgage: Middle-class families turn to ultra-long mortgage deals to lower their monthly payments
- There are fears that the Bank of England may raise interest rates to six percent next year.
- Some borrowers could be in debt well into retirement with 40-year loans
- Experts say middle-class families are used to having too much money, but now they’re cutting back.
- But others say the trends have been 30 to 40 years prior to this week.
Middle-class families are turning to ultra-long mortgage deals to lower their monthly payments as they face a crisis in living standards.
Some homeowners are seeing mortgage bills triple as lenders raise offers amid fears the Bank of England could raise interest rates to 6 percent next year.
Brokers are getting more inquiries about loans up to 40 years that could leave some borrowers in debt well into retirement.
Private Finance’s Chris Sykes said: ‘Many middle-income families have become accustomed to a certain amount of excess money, which they may have used to send their children to private school.
Middle-class families are turning to ultra-long mortgage deals to lower their monthly payments as they face a crisis in living standards (file image)
‘Now they have to make decisions about where and how to cut back.
“People are talking about extending their loan terms, which seems like a good idea now, but they may think differently when they’re 60.”
David Hollingworth, of London and Country Mortgages, said: “Even before this week, we were seeing a trend of borrowers looking for loans up to 30 and 40 years.”
“With rates rising, it’s a lever more people want to use, but it comes at a cost, as you end up paying tens of thousands of pounds in extra interest.”
The demand for lifetime mortgages has been on the rise.
Last month, a new lender, Perenna, was given the green light to offer 50-year fixed-rate loans; while specialist firm Kensington became the first to offer a 40-year fixed-rate mortgage last year.
But the trend has been accelerated by rising interest rates as longer terms can be extended and lower the cost of monthly payments.
Coventry Building Society already announced this month that it will extend its maximum loan term from 35 to 40 years.
Panic has swept the housing market this week, with experts claiming that homes were sitting on a ‘mortgage time bomb’.
Brokers are fielding more inquiries about loans up to 40 years that could leave some borrowers in debt well into retirement (stock image)
According to data from the Bank of England, more than two million homeowners with fixed-term mortgages will re-mortgage between now and the end of 2024.
They face paying thousands more when budgets have already been battered.
At the same time, analysts predict that house prices could fall by as much as 15 percent.
Yesterday, figures from Nationwide confirmed that home price growth was already beginning to slow, even before lenders’ mortgage rates began to skyrocket.
Annual growth in UK house prices fell to 9.5 percent in September, down from 10 percent in August, according to the Building Society index.
There have also been concerns that first-time buyers, who have spent years saving for deposits, will not be able to afford the monthly payments.
A BBC Question Time audience member went viral on Thursday night after claiming that the mortgage rate he had been offered on his first property two weeks ago had now more than doubled, from 4.5 to 10.5 percent.
However, brokers dismissed the story insisting that the buyer, named Rabia, must have faced other financial uncertainties.
Dominik Lipnicki of Your Mortgage Decisions said, “The only rate I can find anywhere near that is a 10.2 percent product offered by a lender that specializes in first-time buyers who have filed for bankruptcy.”