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.”