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PRA chief issues warning over rising mortgage terms

Prudential Regulation Authority chief executive Andrew Bailey has raised concerns about lengthening mortgage terms, warning the trend could cause borrowers problems if their income falls in retirement.

Addressing a Treasury select committee hearing this morning, Bailey said if mortgage terms continue to increase people could be put in a position where they are still paying them off in retirement but cannot afford to meet the payments.

Bailey, who also sits on the Financial Policy Committee, warned term lengths are “increasing as we speak”.

He said: “We have to watch this very carefully because if mortgages extend beyond the point at which income falls off then we have a long-term problem.”

FPC external member Martin Taylor said the rising cost of houses compared to income has pushed borrowers towards longer-term deals.

He said: “One of the things that surprised me coming back to the banking world on a different side of the table is seeing how long mortgages have got at origin. In the 1990s a mortgage was between 20 and 25 years at origin, but now it is usually up at 30 to 35 years.

“The beauty of a relatively short mortgage term is if the borrower got into trouble it is reasonably easy for banks to show forbearance by lengthening it. Where we are now, even with people working into their 80s, it has become more difficult.”


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. More spouting from those who really don’t have a clue!

    Has he checked what it costs today to rent somewhere, or asked “what happens if the income falls off & they can’t afford the rent”?

    People are working longer, so they can therefore afford to enhance their disposable income by enjoying lower mortgage payments, as opposed to those whe were perpetually ‘skint’ whilst paying off their mortgages over 20-25 years, and who couldn’t afford a decent pension. They now sit on an unencumbered asset, but still bemoaning their fate over lack of income in retirement!

  2. Andrew Allcock 15th July 2014 at 3:09 pm

    Perhaps the PRA chief hasn’t noticed that most people will be required by the state to work longer before retiring. In addition it should also be noted the maximum age at maturity of the mortgage with most lenders has been reduced NOT increased.

  3. Grey Haired Underwriter 15th July 2014 at 3:23 pm

    What an idiot – the Regulators brought in a mandatory affordability calculator that encourages people to look at longer terms so as to borrow more. Do these people seriously have no idea of the consequences of their actions!!

  4. Steven Pearman 15th July 2014 at 3:26 pm

    MMR has caused this issue to be magnified.

    Yet another unintended consequence the banks have pounced on to increase their profitability.

  5. The problem with statements such as this are that they mask the very real concerns that professionals have regarding errant lending practices.

    Focusing on one aspect serves to legitimise the madness that now permeates most lenders determinations.

    It was better when only the madmen ran the asylum.

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