Thursday, October 20, 2011

Housing market stimulus – 30 year fix on your 50 year mortgage running to age 85

Shapps calls for 30-year fixed rate mortgages

Housing minister Grant Shapps is expected to urge lenders to offer 30-year fixed rate mortgages in his speech at the Building Societies Association conference today. Shapps is believed to want to spark a debate on longer-term fixed mortgages as a “normal and sensible choice”. Shapps will say that longer-term products will ensure “people know where they stand”, as they will give consumers greater certainty over the costs of buying a house in the long term and allow families on tight budgets to know exactly how much they will be paying for their home in the future.

Posted by jack c @ 11:32 AM (2298 views)
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15 thoughts on “Housing market stimulus – 30 year fix on your 50 year mortgage running to age 85

  • sibley's b'stard child says:

    Make it a maximum of 25 years and this would be a reasonable proposition. I believe these are common over the States, Jack?

    Still, hardly surprising it’s received short-thrift in the comments section by the mortgage broker community.

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  • mark wadsworth says:

    Nah, what we need is 100-year mortgages, capped at the higher of ten times joint income or 200% of the purchase price

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  • Sib’s – under Gordon B’s reign they proposed the same thing and whilst one or two lenders participated with a 25 year fix they soon withdrew (primarily lack of demand). Longer term fixes are a feature of the US housing market but they also operate a different system over there (hand in the key’s routine) and the two combined has led to huge problems.

    The comments section of the article generally gives the proposal short-shrift because longer term fixes normally come with hefty early redemption penalties (ERC’s) – if the average duration of a mortgage remains at around 7 years how could a 30 year fix ever be good value? If the early penalties and fees are excluded the rate will be much higher and again how could that be good value?

    I’m in the comments section under the Daughter’s name (Maria)

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  • sib’s,
    These had been common in the states because the US government indirectly backed them. Ordinary banks aren’t that keen on underwriting 30 year mortages, since it’s hard to get savers to commit to 30 year bonds. Borrowers aren’t keen on them either because the interest rate is much higher.

    Right now in the mortgage market you can get a 1.99% fixed rate for two years, 3.29% for five years, or 3.79% for seven years. There used to be a ten-year fixie but I can’t find it now. HSBC offer a tracker mortgage at base rate plus 1.99% which right now means 2.49%, but beware rate rises!

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  • Gross mortgage lending totalled an estimated £12.9bn in September, down 2% from the £13.1bn lent in August but 4% higher than September 2010, according to new data from the Council of Mortgage Lenders. Gross lending for Q3 of 2011 was therefore an estimated £38.6bn, a 15% increase from Q2 of this year and a 2% increase from Q3 of 2010. Bob Pannell, chief economist at the CML, says: “Both house purchase and remortgage lending appear to have fared well in September, but this is against the backdrop of subdued levels of activity.

    Full article @ http://www.mortgagestrategy.co.uk/economy/gross-mortgage-lending-down-2-in-september/1039955.article

    .

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  • sibley's b'stard child says:

    Hmm, I guess so Drewster & Jack, i’m assuming that the lender would ensure they get their pound of flesh one way or another; of course I recognise that a hypothetical 25 year fixed would come with a hefty rate of interest. I’m also guessing that this would more than offset the loss to the lender of the fees incurred by the regular merry-go-round of remortgaging…

    Still, it’d be nice not to be at the whim of base rate fluctuations which would concern me when I did buy.

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  • lot of people don’t know mortgages in 30’s were often 7 years repayment.

    japan tries 99 years mortgages in 1990/1991 which marked the beginning of the end…house prices are still 40% less in aACTUAL terms than 1991

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  • stillthinking says:

    Mortgage demand must be looking quite peaky in the future as the average age of the first time buyer goes up past 40 with no signs of stopping…

    Finishing off your final payments at 50 and owning outright sounds nice enough, finishing at 55 OK , 60 well one less thing to worry about for retirement but in the end… I don’t think completing your mortgage at 70 sounds all that great, just in time for a forced sale to pay for your care.

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  • mark wadsworth says:

    Taffee: “a lot of people don’t know mortgages in 30’s were often 7 years repayment”

    No I didn’t know that but thanks, in a sane market where houses cost three times multiple of your income (i.e. as much as the rebuild cost plus a token amount for land), if you are prepared to pay as much in mortgage as you would have paid in rent (a third of your net income, plus a bit), it is quite easy to pay off over ten years.

    It always puzzled me that even in the 1990s (golden era of affordable housing) people were taking out 20 or 25 year mortgages. I took out ten year fixed and paid it off in ten, end of discussion, and that was fixed at 6.89% and I was probably paying LESS a month than it would have cost to rent.

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  • I’m stating the obvious here but the longer the term of the mortgage the more profitable for the lender (especially on interest only)

    The profit/gain on a house isnt quite what it seems when you factor in the interest payments eg £107500 borrowing over 33 year term with a 5.40% rate = total repayments of £250400 (£2.33 for every £1 borrowed)

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  • Presumably lenders would be reluctant to commit to such a long term when the BoE is so happy to divert from its 2 percent target.
    30 terms could work in Germany, but not here for that reason. Shapps needs to have a quiet word with uncle Merv

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  • 25 year would be better IMO, but the principle is good.

    I’m not sure the endless permutations of mortgage ‘products’ really benefit the consumer – the god of ‘choice’ merely results in deliberate confusion..

    As I’ve said before, I favour the concept of a national ‘standard’ mortgage, with non-standard packages being subject to a duty charge. The revenues raised could then be used to knock back or eliminate stamp duty.

    A standard product should be a repayment package, with the interest rate fixed for the entire life of the mortgage. Borrowing multiples and LTVs should be limited, and early redemption penalties prohibited.

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  • uncle tom – I agree the number of mortgages simply makes the whole thing a minefield (for brokers included) – there are a multitude of Halifax deals all with different product codes and really are just variations on a theme. The whole thing could be condensed and simplified.

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  • Does Grant Shapps even need to worry about a mortgage or is he talking out of the wrong end ?

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  • And the Tories mates at the banks get another 5 years in interest from mortgage slaves. Lets make it 50 years, from cradle to grave, you are born to slavery, pay massive interest just to be given the right to shelter, and die in debt before you pay it off. If Capitalism in the UK can’t survive without mortgage slavery, we need to find another way.

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