50 year mortgages?!

Shankers

How likely do you think it is that 50 year mortgages will be given the greenlight in the UK?
https://news.sky.com/story/government-considering-50-year-mortgages-that-could-pass-down-generations-to-tackle-housing-crisis-12644368
My own view is that it would be a bad idea as I can only see it pushing housing prices up, meaning it'll still be hard for people to get on the housing ladder.

If you think it'll happen, when do you think it might happen?

Am I wrong in thinking it would push house prices up?

eskbanker

There are boards for mortgages and housing, below https://forums.moneysavingexpert.com/categories/mortgages-homes, that are probably a better home for this than savings & investments....

Shankers

eskbanker said:

There are boards for mortgages and housing, below https://forums.moneysavingexpert.com/categories/mortgages-homes, that are probably a better home for this than savings & investments....

True- I've put it on there, too. It's still a savings and investments issue, though, with respect to issues such as deposits, of considering whether to invest if these changes go through, etc.

jimjames

Shankers said:

eskbanker said:

There are boards for mortgages and housing, below https://forums.moneysavingexpert.com/categories/mortgages-homes, that are probably a better home for this than savings & investments....

True- I've put it on there, too. It's still a savings and investments issue, though, with respect to issues such as deposits, of considering whether to invest if these changes go through, etc.

Invest in what?

Nebulous2

Shankers said:

How likely do you think it is that 50 year mortgages will be given the greenlight in the UK?
https://news.sky.com/story/government-considering-50-year-mortgages-that-could-pass-down-generations-to-tackle-housing-crisis-12644368
My own view is that it would be a bad idea as I can only see it pushing housing prices up, meaning it'll still be hard for people to get on the housing ladder.

If you think it'll happen, when do you think it might happen?

Am I wrong in thinking it would push house prices up?

Talk of this reminds me of Japan before their prolonged period of stagnation. Houses became so expensive they were offering 99 year loans, passing down several generations. 

Their economy has spent 30+ years trying to unwind all that - with lots of 'zombie' loans which may never be repaid. 

Malthusian

The big question is not whether governments will allow them but whether lenders want to offer them. The chances that someone of house-buying age will have the same income in 50 years is virtually nil.

There is nothing to stop you having a mortgage for 50 years right now, providing you remain solvent throughout working age. At the point you stop qualifying for conventional mortgages on affordability grounds, equity release would be an option. (Unless you keep re-mortgaging yourself to the hilt to the extent your LTV is too high despite decades of repayments.) It would be hideously expensive but the option's there, and the Government tinkering with the rules to generate some publicity isn't going to change the cost of borrowing money beyond working life.

jimjames said:

Shankers said:

eskbanker said:

There are boards for mortgages and housing, below https://forums.moneysavingexpert.com/categories/mortgages-homes, that are probably a better home for this than savings & investments....

True- I've put it on there, too. It's still a savings and investments issue, though, with respect to issues such as deposits, of considering whether to invest if these changes go through, etc.

Invest in what?

What Shankers may be driving at is that in theory, if the Government allowed longer term mortgages, the monthly repayments would come down, which would mean young people would qualify earlier on affordability grounds. This may affect the decision of whether to keep running to stand still by holding a house deposit in cash or to invest it in the hope of keeping pace with house price inflation.

But as they point out it could also boost demand which would boost prices which means you would need a larger deposit for the same house which would take longer to save up for.

I doubt it will move the needle much either way.

Linton

Malthusian said:

The big question is not whether governments will allow them but whether lenders want to offer them. The chances that someone of house-buying age will have the same income in 50 years is virtually nil.

There is nothing to stop you having a mortgage for 50 years right now, providing you remain solvent throughout working age. At the point you stop qualifying for conventional mortgages on affordability grounds, equity release would be an option. (Unless you keep re-mortgaging yourself to the hilt to the extent your LTV is too high despite decades of repayments.) It would be hideously expensive but the option's there, and the Government tinkering with the rules to generate some publicity isn't going to change the cost of borrowing money beyond working life.

jimjames said:

Shankers said:

eskbanker said:

There are boards for mortgages and housing, below https://forums.moneysavingexpert.com/categories/mortgages-homes, that are probably a better home for this than savings & investments....

True- I've put it on there, too. It's still a savings and investments issue, though, with respect to issues such as deposits, of considering whether to invest if these changes go through, etc.

Invest in what?

What Shankers may be driving at is that in theory, if the Government allowed longer term mortgages, the monthly repayments would come down, which would mean young people would qualify earlier on affordability grounds. This may affect the decision of whether to keep running to stand still by holding a house deposit in cash or to invest it in the hope of keeping pace with house price inflation.

But as they point out it could also boost demand which would boost prices which means you would need a larger deposit for the same house which would take longer to save up for.

I doubt it will move the needle much either way.

Exactly - if there are x houses available to be sold and x+y who would like to buy then market forces must set house prices at a level such  that y people cannot afford to.  Increasing the ability of some people to buy a house just changes who those y people are.

Grumpy_chap

Linton said:

Exactly - if there are x houses available to be sold and x+y who would like to buy then market forces must set house prices at a level such  that y people cannot afford to.  Increasing the ability of some people to buy a house just changes who those y people are.

I think higher salary multiples for mortgages does result in higher house prices.

You are absolutely correct that x houses with x+y buyers will mean a price is set by market forces and y people cannot afford to buy.

When I purchased my first house, salary multiples were 3, maybe 3.25 times.  Some specific professions could secure 3.5 times salary.
That then set an amount I could afford to buy a house.  3.25 times salary plus 12% deposit was a figure.

My Nieces and Nephews are staring onto the housing ladder and casually talk of 5 times salary multiple as standard.  That is a salary multiple that would simply fill me with dread.

It also does not change who can buy a house as everyone's position in the earning scale is unchanged by the higher salary multiple.  It just means that the purchaser with 5 times salary plus deposit can pay 1.5 times as much as the same purchaser could with 3.25 salary plus deposit.  The result is a higher price for the same house and much more to pay overall.

Extending the term to lower monthly payments is not beneficial in the long term as it impacts pension savings - how many people of my generation bought house and then diverted the mortgage payments towards pension once mortgage cleared?  Not possible if the mortgage is never cleared in working time - logic dictates that the extended mortgage holder doe snot have spare funds each month to pay pension plus mortgage at the same time.

Now, much of the increase in lenders offering higher salary multiples is because of low interest rates meaning that the monthly payments have been lower.  Nobody seems to have considered what will happen when interest rates increase to 5%, 7%, 9%.  We may find out soon.

Rather than the Government seeking more flexibility in mortgage rates, the better solution would be a cap on salary multiple and term which would force a house-price correction.  Bad news, though, that would result in a high number of people in negative equity who purchased recently with a too-high salary multiple and too-long term.  So, the Government will not introduce such caps.

Millyonare

The UK state pension age will almost certainly move to 75 or 80 years, before the end of the century. Regenerative medicine holds promise that we may soon live to 150yo. UK mortgages will inevitably adapt and offer longer terms of 30 to 50 years. Japan already offers 100 years.

Homebuyers aged 18-40 shouldn't be too bothered by 50-year mortgages. There is plenty of time to earn higher wages in the future and pay it down early, shortening the mortgage term to (say) 25 years.

Longer life = longer mortgage.