Mortgages terms may hit 50 years

The length of time taken to pay off a mortgage could rise to 50 years if repayments are to remain affordable, a broker said yesterday.

Charcol said that the steep increase in British house prices, which the Halifax said rose by 4.2% last month to cost an average of £107,152, meant that people were having to take out increasingly large loans.

But it warned that if the trend of property price growth outstripping earnings growth continued, the only way repayments would remain affordable was by increasing the term of the loan.

At present most mortgages have a repayment term of 25 years, but the group said because people were living and working for longer this could be extended to 30, 40 or even 50 years.

An extreme example of this shift has taken place in Japan, where sky-high property prices have made housing unaffordable to the majority of residents on a standard 25-year mortgage.

Charcol said this had led to the development of mortgages with longer repayment terms, some as long as 100 years.

With these very long terms people only pay interest on the mortgage and never own the property outright. Their children then inherit the mortgage as well as the property.

Ray Boulger, senior technical manager of mortgages at Charcol, said: "UK house prices are continuing to rise in excess of earnings, therefore people are looking for larger loans in order to afford these properties.

"If this trend continues, the only way repayments can remain affordable is by increasing the term of the loan.

"The fact that people are living and working longer means that loan terms of 30, 40 or even 50 years do not seem as drastic as they would have done 30 years ago when life expectancy was considerably less."

Charcol said someone with a £100,000 repayment mortgage being paid back over 25 years at 5% would have monthly repayments of £585.

But if the mortgage term was extended to 30 years monthly payments would fall to £537, while over 40 years they would be £482.