The government has been discussing a “Dutch-style” mortgage system of 40 year mortgages, experts have provided their views.
One mortgage expert described the government’s plans as “bankers” and “dangerous” for first time buyers and another said this is “a knee-jerk reaction to a transient problem.”
Darryl Dhoffer, mortgage expert at The Mortgage Expert, “It’s a bonkers idea and means more interest. With a 40-year mortgage, you’ll be paying interest for a longer period. This means that you’ll end up paying more interest overall.
“For example, if you take out a 40-year mortgage at 4% interest on a £200,000 loan, you’ll pay £140,000 in interest over the life of the loan. If you take out a 30-year mortgage at the same interest rate, you’ll pay £108,000 in interest.
“You’ll build equity slower, too. With a 40-year loan, you’ll be paying more of your monthly payment towards interest and less towards capital. This means that it will take you longer to build equity in your home.
“For example, after 10 years, you’ll have only paid off about 20% of your loan with a 40-year mortgage.
“With a 30-year mortgage, you’ll have paid off about 35% of your loan. You’ll be more vulnerable to interest rate changes too: if interest rates reduce, you could be losing out on lower repayments if you are tied into a 40-year mortgage with high Early Repayment Charges.”
Lewis Shaw, owner and mortgage expert at Shaw Financial Services said, “This is a terrible idea and a knee-jerk reaction to a transient problem.
“More credit means higher house prices, which means home ownership becomes out of reach for even more aspiring first-time buyers. This doesn’t solve the problem but would only exacerbate it.
“We don’t have an issue with mortgages per se, we have an inflationary issue that will be fixed, and we have a problem with house prices completely detached from average wages.
“A 40-year fixed-rate mortgage does not improve the underlying causes of where we are. This is fiddling while Rome burns.
“The only way to sustainably help first-time buyers is to build more good quality affordable homes and to stimulate economic and wage growth without inflating property asset prices by wholesale root and branch reform of the property market. We need to move away from property speculation and start seeing bricks and mortar as what it’s designed for, namely a place to live.”
Leave a Comment