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FSA drops proposed 25-year maximum mortgage term

The FSA has dropped its proposed requirement for affordability to be assessed on a maximum 25-year term.

The regulator says the feedback from its December consultation paper showed a “strong consensus” to drop the requirement.

The FSA says: “Respondents felt this was too restrictive and in particular would prevent younger customers from getting on the property ladder.”

Respondents also argued that dropping the proposal would be consistent with increasing life expectancies and working lives of customers.

Trinity Financial Group product and communications manager Aaron Strutt says: “Brokers have been using longer terms for years in order to make mortgage payments more affordable. It was not a very sensible proposal as house prices are too expensive for that kind of restriction.

“You have not got to play with an affordability calculator for very long to realise that monthly repayments on a capital repayment mortgage are expensive and, the shorter the term, the higher the payments are. People would not be able to afford to buy if the proposal had been included in the rules and first-time buyers would have been hit in particular.”

London and Country head of communications David Hollingworth says: “Longer mortgage terms are something borrowers will potentially be looking at following the almost-disappearance of interest-only mortgages from lenders. Some might try to give themselves more leeway on the monthly payments by looking at structuring mortgages over a longer term. The obvious caveat with this is interest repayments will be higher.

“People are inevitably going to want to manage the monthly payment down. Because of the way house prices in some areas keep powering on, substantial borrowing is increasingly required. They might just want to give themselves a little extra breathing space.”

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