50-Year Mortgages Are On The Way… But Are They A Good Idea?
A new digital mortgage company has rocked onto the scene announcing plans to launch a 50-year fixed-rate mortgage in the near future. These radical proposals are more than just a pipedream, having already been granted the necessary licensing to go ahead.
The mortgage provider behind this product claims it will offer longer-term certainty for borrowers amid rising inflation and increasing interest rates. But are 50-year mortgages really a good idea? Here we’ll take a look at their advantages and disadvantages to help you decide.
What would be the benefits of a mortgage this long?
Being fixed into a mortgage for 50 years will appeal to some for the following reasons…
1. Certainty in uncertain times
Consistency will no doubt be a big draw for some borrowers. Knowing exactly what your mortgage payments will be each month for the lifetime of the loan will allow homeowners to draw up long-term budgets and plan ahead, without worrying what the Bank of England’s base rate might do next. Your mortgage would be shielded from any rates hikes indefinitely.
2. Lower monthly repayments
By stretching the mortgage out over such a long period, the monthly capital repayments will be roughly half what they’d be on a standard mortgage term (25 years). In theory, this means households that opt for this product might have extra disposable income to play with.
3. Less need for stress tests
The rules around affordability stress tests were recently relaxed, but who knows what will happen with them in the future? If you were locked into a 50-year fixed rate, however, there would be little need for them at all, so this could make homeownership more accessible for some by allaying lenders’ concerns about their ability to make repayments if rates were to rise.
4. Good news for first-time buyers
Mortgage lenders often view young, first-time buyers as risky customers, and some are reluctant to offer them finance on standard terms. This demographic could be the one to benefit most from 50-year mortgages, as lenders are likely to be less wary of them defaulting on their agreement with palatable payments spread out over such a lengthy term.
And here are the drawbacks…
Stretching a mortgage debt out over half a century isn’t for everyone. Indeed, the most popular term length for a mortgage is between 25 and 27 years and shorter fixed-rate agreements (2-5 years) are generally more popular than the longest ones currently on the market.
Here are the disadvantages of taking out a 50-year mortgage…
1. The overall cost would be higher
You might be paying less out each month, but by spreading the cost of the mortgage over 50 years rather than the standard 25, you’d be paying twice as many interest instalments, and therefore would be paying more for your mortgage in the long run. Rates on these mortgages are also likely to be on the high side, so the overall cost might not make pleasant reading.
2. Less flexibility
Needless to say, a 50-year mortgage won’t be for you if your circumstances are likely to change in the short term and you want flexibility. Although the lender behind the 50-year mortgage has confirmed that borrowers will be able to remortgage or switch providers without penalty after five years, half a decade is still a long time to wait if your needs change early into the agreement.
3. Inaccessible for older borrowers
Some might argue that later-life borrowers are another demographic that might benefit from small monthly mortgage payments, but it’s difficult to imagine anyone older than middle-aged qualifying for a 50-year mortgage. If you were to take one out at age 40, you could still be saddled with a debt on your property after your 90th birthday, if you live that long.
4. You might never own your home outright
Smaller mortgage payments are all well and good, but if you were tied to a 50-year mortgage, there’s a possibility that you might never own your home outright. Being mortgage-free presents endless possibilities in later life, and many people use it as an opportunity to up their pension contributions for a more comfortable retirement. With many years of mortgage debt still ahead of you, your chances of enjoying a care-free retirement are likely to be slim.
With the UK’s first 50-year fixed-rate mortgage yet to launch, it’s unclear to what extent the above pros and cons will apply; but if you’re keen to find out more about this type of financial agreement, check out our complete guide to fixed rate mortgages.