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Charcol foresees move to longer-term mortgages

A move towards Japanese-style longer mortgage terms could be on its way as affordability becomes a increasing problem in the UK, according to broker Charcol.

Charcol is predicting a change in borrowing culture as people try to cope with the trend of house prices rising in excess of earnings.

It is warning that if this continues, the only way that repayments can remain affordable is by paying loans back over longer terms of up to 50 years.

In Japan, it says sky-high prices mean that property ownership is beyond the reach of the majority of residents over a 25-year term and this has led to repayment periods of up to 100 years.

Although Charcol does not expect the UK to go this far, it says that with people living and working longer, loan terms of 30, 40 or 50 years are not out of the question.

But lenders such as Abbey National say they experience limited demand for longer-term mortgages, especially in a low interest rate environment.

Although Abbey offers a 35-year mortgage, it says borrowers, especially first-time buyers, are opting for more flexible loans which allow overpayments and underpayments.

Senior technical manager Ray Boulger says: “We do anticipate a shift towards longer-term mortgages. However, for fixed rates to be attractive, lenders will have to offer products with more flexibility and at more competitive rates although their ability to do this will depend on the money markets.”

Abbey National media relations executive Sharon Makin says: “We do not actively recommend our 35-year mortgage but if rates did creep up, there might be more demand.”

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