Borrowers reject 40-year mortgages
Property prices over the past 20 years have steadily continued to outstrip increases in earnings, making it particularly difficult for first-time buyers to get that important first foot on the property ladder. They looked at the generations before them, whose homes were bought in calmer times and which have now appreciated in value to unforeseen levels, and could only dream of such good fortune.
Despite increasingly onerous conditions put on mortgage lending by successive governments, lenders usually found ways to circumvent these restrictions. One of these was the introduction of the 40-year mortgage.
The new regime
Traditionally mortgages ran for 25 years and repayments of interest and capital remained manageable. But as the gap between earnings and property prices widened lenders would offer longer-term mortgages, first to 30 years and eventually to 40. As with ordinary personal loans the effect of this was to reduce the monthly repayments to a realistic level for average earners, while the extended period meant that ultimately the buyer would pay more in total by the time the loan came to an end. By the summer of 2019 more than half of mortgages offered the 40-year option.
Young first-time buyers saw this as an acceptable trade-off. They could own their home now and worry about the true cost later. Older buyers in their late twenties or early thirties would often find themselves shut out of such deals by strict age limits. Even the most generous deals would incorporate a cut-off age of 75. For buyers over 35, such mortgages were off limits.
For a while these long-term mortgages did bring real benefits. Not only did they keep monthly payments low they tended to confer greater buying power. But the requirements to qualify became gradually more stringent. They never became a truly mainstream product and in practice could be hard to find.
However the market has changed, finding the right mortgage remains a process fraught with difficulty. For decades mortgage brokers have tried to take the sting out of the experience and they do offer buyers a very valuable service. Just as it is important to keep legal costs down by gathering and comparing conveyancing quotes through a service such as https://www.samconveyancing.co.uk/conveyancing-quote, so it can be extremely helpful to use such a company to give you access to the broadest range of brokered mortgages.
Lenders in retreat
The collapse of the ‘marathon mortgage’ has been rapid and spectacular. The reasons for this are two-fold. Firstly, lenders became nervous about the risk these high loan-to-value mortgages exposed them to at a time when economic recovery after the 2008 crash remained fragile. On top of that personal finances of middle-income earners suffered a serious blow during the coronavirus pandemic.
Secondly, lenders themselves started to take the longer view and appreciate the extent and longevity of the debt they were taking on. Longer term mortgages are still popular, especially among first-time buyers, but the most extreme ones of 40 years or more have fallen out of favour.