[Finance] 40 year mortgages

Herr Tubthumper · Sunday at 10:33 AM

There’s an article in today‘s Observer about this topic and it being seen as a “way out” of youngsters not being able to afford their first house. When the link is released I’ll post it.

This type of mortgage originated in the Netherlands a few years ago but is quickly spreading. After much consideration, I took out one of these a few years ago, with a Dutch bank, and will most likely be dead by the time the original term expires. All things considered, a lifetime flexible and totally portable mortgage seems sensible to me. There seems to be concerns with this product though.

What’s the thinking on here ? I spent ages mulling this over so I’m curious what others think.

Weststander · Sunday at 10:44 AM

R4 prog recently covered this, it’s been mentioned as the norm elsewhere in Europe before. The experts had no issues.

The products are 30, 35 and 40 year mortgages. Two thirds of first time buyers already take out a mortgage greater than 25 years.

Some info here.

First-time buyers: 30 and 35-year mortgage terms could save you up to £170 a month - Which? News

Two thirds of first-time buyers borrow for more than 25 years, but there are pitfalls to consider

www.which.co.uk

I assume people will still move up the ladder as the balance is reduced and household income eventually increases.

Wardy's twin · Sunday at 10:55 AM

With the huge amounts being required to buy houses I think its a good way to get into the market as you pay less each month (though over more months) , my 25 year mortgage basically became 35 with moves and extensions. What you have to do is understand what you are taking on and the implications, to me its the same issue taking on a 25 year mortgage and not knowing whether the rate will be 2% or 10% in 5 years time or whether you will be earning more or maybe less than you currently do. As far as I am aware you could terminate a 40 year mortgage early if you able to pay more each month later on in your life.

Triggaaar · Sunday at 11:13 AM

Herr Tubthumper said:
There’s an article in today‘s Observer about this topic and it being seen as a “way out” of youngsters not being able to afford their first house. When the link is released I’ll post it.

This type of mortgage originated in the Netherlands a few years ago but is quickly spreading. After much consideration, I took out one of these a few years ago, with a Dutch bank, and will most likely be dead by the time the original term expires. All things considered, a lifetime flexible and totally portable mortgage seems sensible to me. There seems to be concerns with this product though.

What’s the thinking on here ? I spent ages mulling this over so I’m curious what others think.

I took out an interest only mortgage out in 2006, which would have required replaying in 2031, but since I had no way of paying it off, I extended it to - shit I don't even know when, a long time. It means I can be in a property I wouldn't otherwise be able to afford. Not necessarily right for other people, but works for me.

So in answer to your question, simply look at the alternatives and work out what's best for you.

Herr Tubthumper · Sunday at 11:14 AM

Wardy's twin said:
With the huge amounts being required to buy houses I think its a good way to get into the market as you pay less each month (though over more months) , my 25 year mortgage basically became 35 with moves and extensions. What you have to do is understand what you are taking on and the implications, to me its the same issue taking on a 25 year mortgage and not knowing whether the rate will be 2% or 10% in 5 years time or whether you will be earning more or maybe less than you currently do. As far as I am aware you could terminate a 40 year mortgage early if you able to pay more each month later on in your life.

Good point about your mortgage becoming 35 years.

Herr Tubthumper · Sunday at 11:18 AM

Triggaaar said:
I took out an interest only mortgage out in 2006, which would have required replaying in 2031, but since I had no way of paying it off, I extended it to - shit I don't even know when, a long time. It means I can be in a property I wouldn't otherwise be able to afford. Not necessarily right for other people, but works for me.

So in answer to your question, simply look at the alternatives and work out what's best for you.

A friend of mine bought a nice apartment in Hampstead interest only, lived in it for around 15-20 years and sold at a huge profit to buy a nice house in Hampstead Garden Suburbs. This was always his plan and it worked a treat for him.

Mustafa II · Sunday at 11:35 AM

40 year mortgages are a great option for people who need lower monthly payments. Just because it's a 40 year term, doesn't mean it will take 40 years to pay off, as inflation will naturally reduce the debt over time.

I often have gone for longer term mortgages anyway, and overpaid the difference, just for the extra financial security that comes with it.

Herr Tubthumper · Sunday at 11:36 AM

Triggaaar said:
I took out an interest only mortgage out in 2006, which would have required replaying in 2031, but since I had no way of paying it off, I extended it to - shit I don't even know when, a long time. It means I can be in a property I wouldn't otherwise be able to afford. Not necessarily right for other people, but works for me.

So in answer to your question, simply look at the alternatives and work out what's best for you.

The concerns raised were the fact the mortgage will ultimately cost more, saddled with bigger debt for longer periods etc. My take is the basic premise of mitigating affordability by allowing larger borrowing has presented problems in the past. But considering all the options, including being puzzled why a bank which will give me a mortgage which not only goes into my retirement but most likely go beyond my actual life, it seemed to make total sense. The trade-off for the duration is the total flexibility it provides, one does need to be disciplined and we plan to pay it back before retirement, but it seemingly allows us lots of options.

Bakero · Sunday at 12:11 PM

Herr Tubthumper said:
The concerns raised were the fact the mortgage will ultimately cost more, saddled with bigger debt for longer periods etc. My take is the basic premise of mitigating affordability by allowing larger borrowing has presented problems in the past. But considering all the options, including being puzzled why a bank which will give me a mortgage which not only goes into my retirement but most likely go beyond my actual life, it seemed to make total sense. The trade-off for the duration is the total flexibility it provides, one does need to be disciplined and we plan to pay it back before retirement, but it seemingly allows us lots of options.

That's the part that I don't get. I mean, giving somewhere in their 20s a 40-year mortgage makes sense but not to am older person.

A mate of mine over here for a 30-year one when he was mid-40s, which surprised me. I guess the bank think he'll still be good for it in retirement. Presumably, the same in your case and they're expecting a long life

Herr Tubthumper · Sunday at 12:27 PM

Bakero said:
That's the part that I don't get. I mean, giving somewhere in their 20s a 40-year mortgage makes sense but not to am older person.

A mate of mine over here for a 30-year one when he was mid-40s, which surprised me. I guess the bank think he'll still be good for it in retirement. Presumably, the same in your case and they're expecting a long life

I didn’t get it either, still don’t to be honest, but then I view it through my lens of UK mortgages.

dwayne · Sunday at 12:41 PM

Herr Tubthumper said:
A friend of mine bought a nice apartment in Hampstead interest only, lived in it for around 15-20 years and sold at a huge profit to buy a nice house in Hampstead Garden Suburbs. This was always his plan and it worked a treat for him.

That was a great plan 20/30 years ago. But for the last 10 years you ain't getting much capital appreciation in London deducting inflation !!

Interest only is a mugs game at the moment in England.

Herr Tubthumper · Sunday at 12:58 PM

dwayne said:
That was a great plan 20/30 years ago. But for the last 10 years you ain't getting much capital appreciation in London deducting inflation !!

Interest only is a mugs game at the moment in England.

His plan was dependent on house price inflation so yes, he’d have been f***ed if there hadn’t been rampant inflation over the last 20 odd years.

Paulie Gualtieri · Sunday at 1:21 PM

I took out an initial 30 year term to get on the ladder for affordability purposes but have made a point of shaving off a year each time the fixed rate comes to an end to correct this. Also overpaying 10% a month will knock off 6-7 years on the term.

Everyone’s circumstances at different times are obviously different, it’s a good option in some circumstances

S.T.U cgull · Sunday at 1:33 PM

dwayne said:
That was a great plan 20/30 years ago. But for the last 10 years you ain't getting much capital appreciation in London deducting inflation !!

Interest only is a mugs game at the moment in England.

For PAYE earners yes. The bulk of lending to HNW on London property is Interest Only

S.T.U cgull · Sunday at 1:36 PM

Bakero said:
That's the part that I don't get. I mean, giving somewhere in their 20s a 40-year mortgage makes sense but not to am older person.

A mate of mine over here for a 30-year one when he was mid-40s, which surprised me. I guess the bank think he'll still be good for it in retirement. Presumably, the same in your case and they're expecting a long life

Most lenders have a top borrowing age of somewhere between 75-80.

Concerningly forewarns that this is the age range where a lot of lower-earners will need to continue to work to before their State Pension kicks in.

If you think the UK system is a bit much now offering 40 year solutions - take a look at Switzerland, where some banks will do… 125 years…

Herr Tubthumper · Sunday at 1:41 PM

Here's the article

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Papak · Sunday at 1:43 PM

This is not new, been around in Japan for 30 years:

https://www.sciencedirect.com/science/article/abs/pii/1061951895900047

Eric the meek · Sunday at 1:52 PM

Papak said:
This is not new, been around in Japan for 30 years:

https://www.sciencedirect.com/science/article/abs/pii/1061951895900047

You beat me to it.

I was just going to write a post about Japan.

'I'm pretty sure 40 year mortgages and lifetime mortgages were a thing in Japan a generation ago, when the country experienced a disastrous population decline, coupled with an increase in longevity, meaning fewer houses were available to buy, because older people stayed in them longer. Mortgages were being transferred between the generations.'

Triggaaar · Sunday at 1:53 PM

dwayne said:
Interest only is a mugs game at the moment in England.

That's not true. As one example. if you buy a property to let it out, you can claim tax credit on your mortgage interest payments, and it's not helpful if those payments go down because you have a repayment mortgage.

Another example would be if you can buy the property you want with an interest only mortgage, but couldn't with a repayment mortgage.

Another example is when you're able to invest the money you save in a better way than paying off your mortgage.

Papak · Sunday at 2:06 PM

Triggaaar said:
That's not true. As one example. if you buy a property to let it out, you can claim tax credit on your mortgage interest payments, and it's not helpful if those payments go down because you have a repayment mortgage.

Another example would be if you can buy the property you want with an interest only mortgage, but couldn't with a repayment mortgage.

Another example is when you're able to invest the money you save in a better way than paying off your mortgage.

Yes, but you also declare the full rent received as income first - thank Mr Osborne for that! Meaning I pay 40% income tax and get mortgage interest relief at 20% or whatever it is these days.

Hmmm, more like borrow as you are not making any capital repayments

This is possible but not without risk

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