Stephen Pritchard reports on how to reduce the burden
Published: 15 November 2006

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Jim Armitage, Evening Standard
15 November 2006

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Halifax will be increasing its standard variable rate (SVR) from 6.75% to 7.0%, following last week's base rate rise.

The increase for existing SVR borrowers will come into effect at the same time as the increase in savings rates on 1 December 2006.

Mortgages which track the Bank of England base rate will increase by 0.25% with effect from 11 November 2006.

New monthly mortgage payments for all customers will take effect from 1 December 2006.

Becky Barrow, Daily Mail 9 November 2006
Young people are being offered home loans which can take almost 60 years to pay off.

The 'life-long mortgages' from Britain's biggest lenders are aimed at first-time buyers who are desperate to get on the property ladder.

But last night the deals were described as 'madness' by experts, who warned that while they initially appear attractive due to lower monthly repayments, the borrower can end up paying more than £100,000 extra in interest.

Soaring house prices have forced would-be home-buyers to resort to extreme measures. Young couples are borrowing up to five times their joint salary in the hope of affording a property.

Interest rates, currently 4.75%, are widely tipped to be increased by the Bank of England today to five%, their highest level for five years.

And the average property has soared to a record £211,500, according to figures published yesterday by the Land Registry.

As a result, lending giants are letting buyers as young as 18 take out a home loan which will not be paid off until they are well into old age.

The second-biggest mortgage lender, Abbey, is offering a 57-year mortgage. Tesco is not far behind, offering a mortgage which lasts for 52 years, while First Direct has a 47-year deal.

Other lenders have also relaxed their terms, including Nationwide which increased its maximum term from 35 to 40 years in April.

Under a 25-year deal, a person who borrowed £150,000 at an interest rate of 6.75% would pay a total interest bill of just over £160,000. With a 57-year mortgage, the interest bill would be an extra £280,000 - enough for a second home.

Few young people, particularly in the South, can afford to take out a mortgage big enough to buy a home. Some are resorting to taking out 'group mortgages' which let them buy with up to three other friends, family members or even strangers.

But many young people will be tempted to take out a lifelong mortgage because the monthly repayments are cheaper. There is a difference of about £175 a month between the monthly repayments on a £150,000 25-year mortgage, compared with a 57-year mortgage.

However Nick Gardner, director of mortgage broker Chase de Vere Mortgage Management, said: 'Life-long mortgages are a false economy. You end up paying literally tens of thousands of pounds in extra interest. It really is not a sensible thing to do.

'The idea of paying off a mortgage for 40, 50 or even 57 years is madness.'

He said that in extreme cases a home-buyer desperate to obtain a property could take one out for a few years but should switch to a shorter term as soon as possible.

Longer term mortgages are inevitable I am afraid if the UK population continues its pashion for homeownership, these are however still some quite good very long fixed rates available in the market which makes such a move more palatable, for best rate details click to www.MortgageShop.com

David Hollingworth, mortgage specialist at brokers London & Country Mortgages, said: 'If you do it, it will cost you way more than keeping a mortgage term to 25 years, or 20 years or even less, if possible. The shorter the term, the less interest you pay.'

Lenders insisted yesterday that they have not seen a huge rush of borrowers willing to burden themselves with a life-long mortgage.

They say that they discourage people from taking them out, and always make it clear that the interest bill will be huge if they do.

An HSBC spokesman, which has a 40-year deal, said: 'It is not something that we actively promote because we want to be seen as a responsible lender.'

Tesco Personal Finance said a 52-year mortgage was 'very difficult to get', while Abbey said: 'Very few 18-year- olds would want to take on a 57-year mortgage burden.'

The average age of a first-time buyer is about 30.

There are various rules which restrict buyers' ability to take out this type of mortgage, typically having to repay the mortgage before your 70th birthday.

So at Abbey, for example, you would have to be 18 to take out a 57-year mortgage because it must be repaid by your 75th birthday. The mortgage holder would be expected to have life insurance to cover the remaining costs of the loan if he or she dies before the full term is up.

The Council of Mortgage Lenders said that overall the average life of a mortgage which people take out is still 25 years.

But research published yesterday by the website Money-Expert.com claimed nearly a third of mortgage lenders allow home-buyers to borrow for 40 years or more.

Investigation of 126 different deals found that just one in four still has a maximum term of 25 years.

Sean Gardner, MoneyExpert chief executive, said: 'The old model of three times salary and a mortgage lasting 25 years is on the way out.'

Despite the high property prices in this country, estate agents Knight Frank predict house prices will rise by an inflation-busting six% next year.

This is despite the fact that the average price is £330,000 in London, £350,000 in Surrey and £250,000 in West Sussex and Hampshire.

October has seen new home buyers return to the market in their droves with a record number of site visits and searches, says SmartNewHomes.com.

The average price of a new home is up 1% since July and up 0.7% since the same time last year.

Following its recent fall in popularity the new detached home has made a come back in October with the average price up 3.6% on the previous month – the biggest recorded price growth across the mix.

In contrast, the townhouse has experienced a fall over the same period, with average prices now just over £240,000.

SmartNewHomes.com also records how much home buyers indicate they are willing to pay for a new home.

Buyer confidence has continued to rise steadily this month as the price buyers are willing to pay for a new home (demand price) continues to increase, reflecting the upward turn in the current price of a new home across the UK (stock price).

October has proved a positive month for new home buyers as record numbers search the SmartNewHomes.com site for a new home. Prices are now back on track for a positive end to 2006, overtaking those prices experienced at the same time last year.

The average price of a new home reached £257,036 in October, compared with £255,327 in October 2005, resulting in a 0.7% annual price increase. 

The latest fixed rates are online and available from www.Mortgage-Shop.co.uk, FREEPHONE 0800 092 0800.

Building societies could soon be offering cheaper mortgages and loans as the Treasury consults on changes to the building societies legislation to help lenders who are close to their funding limits.

Speaking at the Building Societies Association (BSA) annual lunch, Ed Balls, economic secretary at the Treasury, said its proposed changes should enable societies to raise more, generally cheaper, wholesale funding and facilitate the provision of cheaper and better products.

The changes relate to offshore deposits and the contents of summary financial statements, directors’ reports and annual business statements – as well as certain financial amounts specified in the 1986 Building Society Act.

Currently, individuals’ deposits in building societies’ offshore subsidiaries are treated as wholesale funding in measuring compliance with the funding limit. This is anomalous since such funding has more in common with retail funding and should therefore be excluded from the funding limit calculations.

A number of the financial limits for building societies under the Act were last reviewed in 1999 – and a number have not been reviewed since before then.

Ed Balls said: "Taking these steps should relieve pressure on building societies who are close to their funding limits. We will continue our programme of monitoring the legislation and, where necessary, updating it using the existing powers within the Building Societies Act."

Rachel Le Brocq, spokesperson for the BSA, said it welcomed the proposals which it believes will make building societies even more competitive in the marketplace.

She said: "The changes will mean those building societies with overseas subsidiaries will be able to use a greater proportion of wholesale funding, which is generally cheaper than retail funding.

"This will mean better value for customers, and cheaper mortgage products."

Don't forget www.Mortgage-Shop.co.uk has access to all the lastest rates and advisers covering the whole of the UK and islands, get your FREE quote now. FREEPHONE 24 hours a day on 0800 092 0800.

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