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Simon Taylor

Turning Japanese - 35 Year Mortgages Becoming The Norm.

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FT reporting that over a quarter of FTB mortgages are now 35 year terms. Not content with skimming a chunk of a lifetime's work, the banks now want you owned through retirement. Not that you'll have one because you won't be able to save for pension or be able to contemplate stopping work.

https://next.ft.com/content/3e4d8066-b7ad-11e5-bf7e-8a339b6f2164

A 35-year repayment term is on the verge of becoming normal for first time buyers taking out a mortgage, highlighting lenders willingness to ease the conditions for people struggling to get on to Britain’s expensive housing ladder.

With regulators strongly encouraging lenders to concentrate on repayment mortgages, now accounting for 88 per cent of new lending, an extension in the duration of mortgages has been the way borrowers have lowered the financial burden of repayments.

Lending figures from the Halifax on Monday showed that 26 per cent of first time buyers across the mortgage market took out a 35-year mortgage in 2015, compared with 30 per cent who had a mortgage term between 20 and 25 years. As recently as 2007, the shorter mortgage dominated with 48 per cent of loans. Only 15 per cent were for 35 years.

The danger of longer mortgage repayment periods, as Andrew Bailey, deputy governor of the Bank of England, pointed out in 2014, is that if mortgages extend into retirement when incomes fall “we have a long-term problem”.

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It really is criminal.

Banks imagine money out of thin air to lend to people, and then expect that person to work their entire life to pay it back. I am seriously thinking of just packing work in, what's the point.

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But MMR affordability is calculated on 25 repayment.

In the original version of the Review, yes.

However, if you open the document Policy FSA - PS12/16 - Mortgage Market Review: Feedback on CP11/31 and final rules, it says:

"Q7: Do you have any comments on our proposal to drop the

requirement that affordability should be assessed on a

maximum term of 25 years?

25. There was a strong consensus in favour of dropping the requirement that affordability

should be assessed on a maximum term of 25 years. Respondents felt this was too restrictive,

and in particular would prevent younger customers from getting on the property ladder.

Instead, they felt that a customer’s individual circumstances should be taken into account.

26. Respondents also noted that dropping this proposal would be consistent with increasing life

expectancies and working lives of customers.

Our response

We have dropped this requirement."

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In the original version of the Review, yes.

However, if you open the document Policy FSA - PS12/16 - Mortgage Market Review: Feedback on CP11/31 and final rules, it says:

"Q7: Do you have any comments on our proposal to drop the

requirement that affordability should be assessed on a

maximum term of 25 years?

25. There was a strong consensus in favour of dropping the requirement that affordability

should be assessed on a maximum term of 25 years. Respondents felt this was too restrictive,

and in particular would prevent younger customers from getting on the property ladder.

Instead, they felt that a customer’s individual circumstances should be taken into account.

26. Respondents also noted that dropping this proposal would be consistent with increasing life

expectancies and working lives of customers.

Our response

We have dropped this requirement."

That's what I thought.

Allowing the term to be of any length, undermines the point of testing affordability.

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getting on the property ladder.

I hate that term. It is hugely emotive and yet it is used in supposedly objective contexts.

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Ah but then they run into having a mortgage at pension age.

Not to worry, they'll just keep putting the pension age back and problem solved. :)

Edited by SpectrumFX

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Ah but then they run into having a mortgage at pension age.

But there won't be a pension. The beauty of this plan is that the 'buyers' keep working to pay the mortgage until they drop.

House gets sold to another 'buyer' who rents the same money for another 35 years, repeat ad infinitum. Kerrr-ching.

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There is no ladder, even if you manage to reach the first rung there is no second rung unless your income rises on par with annual house price rises......basically most people will be effectively stuck for many years if not indefinitely....moving sideways is often unobtainable due to high moving costs, fees and taxes... ;)

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Ah but then they run into having a mortgage at pension age.

Here is the FCA's take from the final rules and guidance

"Future changes to income and expenditure

11.6.14 Rule

If a firm is, or should reasonably be aware from information obtained during the application process, that there will, or are likely to, be future changes to the income and expenditure of the customer during the term of the regulated mortgage contract or home purchase plan, the firm must take them into account when assessing whether the customer will be able to pay the sums due for the purposes of n MCOB 11.6.2 R.

11.6.15 Guidance

(1) Examples of future changes to income and expenditure in n MCOB 11.6.14 R are: reductions in income that may come about following the customer's retirement; where it is known that the customer is being made redundant; or where the firm is aware of another loan commitment that will become due during the term of the regulated mortgage contract or home purchase plan, such as an equity loan to assist in property purchase.

(2) If the term of a regulated mortgage contract or home purchase plan would extend beyond the date on which the customer expects to retire (or, where that date is not known, the state pension age), a firm should take a prudent and proportionate approach to assessing the customer's income beyond that date. The degree of scrutiny to be adopted may vary according to the period of time remaining to retirement when the assessment is made. The closer the customer is to retiring, the more robust the evidence of the level of income in retirement should be. For example, where retirement is many years in the future, it may be sufficient merely to confirm the existence of some pension provision for the customer by requesting evidence such as a pension statement; where the customer is close to retirement, the more robust steps may involve considering expected pension income from a pension statement. In accordance with n MCOB 11.6.12R (1), a firm should take a common sense view when assessing any information provided by the customer on his expected retirement date.

(3) Where an additional loan commitment is expected to become due during the term of the regulated mortgage contract or home purchase plan, the mortgage lender should assess whether the regulated mortgage contract or home purchase plan will remain affordable when the loan commitment becomes due, unless there is an appropriate repayment strategy in place to repay that loan, such as through the sale of the property which is the subject of the regulated mortgage contract or home purchase plan."

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In the original version of the Review, yes.

However, if you open the document Policy FSA - PS12/16 - Mortgage Market Review: Feedback on CP11/31 and final rules, it says:

Our response

We have dropped this requirement."

These tough mothers know how to negotiate.

The closer the customer is to retiring, the more robust the evidence of the level of income in retirement should be. For example, where retirement is many years in the future, it may be sufficient merely to confirm the existence of some pension provision for the customer by requesting evidence such as a pension statement;

Classic.

Edited by R K

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I would be interested to see what the figures are for when their next mortgage 'deal' was taken out.

I done the same when I took out the mortgage. Mortgage was 2 year deal with 35 year term, used the 'saved' money to get some repairs / decoration / furniture done to the house because we weren't sure how much things were going to cost etc as we'd never had a house before, no bank of mum and dad to rely on either.

Money we didn't spend went into a pot and was paid off the mortgage at the end of the two years. So we where no worse of really. Next term was 20 years as we knew where we were with bills and monthly payments and all the rest.

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So the idea of getting people to put money into pensions is so that they have enough income in retirement to carry on paying their mortgage. Up til now most people who bought had paid off their mortgage by the time they retired but those who rented had to carry on paying rent until they popped their clogs. So there will be a drastic drop in people taking cruises etc. Don't bother buying shares in these companies. Everyone will be working flat out until they drop.

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Doesn't surprise me , way prices have been going in my area 35 year would be only way people on average wage can afford the payments

Indeed. But it's because people can borrow over 35 years that prices keep rising. The monthly repayment is the same as that for a 25 year mortgage but the capital sum borrowed is higher so the 'buyer' can pay more for the house.

The banking industry will continue to find ever more ingenious ways to extract ever greater levels of interest from the same house. It'll 45 years next.

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Going full term with a mortgage should only be a worst case scenario, the objective should always be to pay it off as quickly as possible regardless. Sadly most people seem to lose sight of that point & concentrate on borrowing as much as possible....

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