Is the 40-year mortgage the new sub-prime?
Posted by BabyHealthExpert@reddit | AskUK | View on Reddit | 95 comments
I now know 3 people who are buying a house on a 40-year mortgage. One of which I know that their fixed-term is only 2-years.
Banks are now even accepting just 5% deposits.
To me, a 40-year mortgage implies you have absolutely stretched yourself in terms of how much you can lend for a mortgage. I don't think anyone would take one of these because they want to have lower month payments. And even if they do, they're signing up to pay so much more interest for that luxury.
I asked ChatGPT to do the calculations and you have to stay in a property for around 5-7 years (depending on your current rent payments and stamp duty amounts) in order for it to be a better financial decision over renting.
But what happens when you need to renew?
What if interest rates have increased so no one will lend to you as you can no longer get a 40-year mortgage (because it's now 35-years until retirement) and your equity will be minimal.
What if you lose your job and are looking for another job when that mortgage renewal comes up?
You will be forced to sell, but if you don't have any equity and the property market has gone down you'll be in negative equity and forced in to bankruptcy.
And this cycle is going to happen 8 times in your 40-year term if you keep the property until retirement.
I just can't see how this ends well. Keen to hear thoughts, I hope I'm wrong as I own my house.
xPositor@reddit
OP should look up Japan's generational mortgages - up to 100 years in length...
BabyHealthExpert@reddit (OP)
omg
St2Crank@reddit
“What if interest rates have increased so no one will lend to you as you can no longer get a 40-year mortgage (because it's now 35-years until retirement) and your equity will be minimal.”
At this point you wouldn’t need a 40 year mortgage. You’re 5 years in so would need a 35 year mortgage.
In answer to your wider question though. Houses are more expensive than they used to be, in both actual value and relative to people’s income.
SnooMacarons4225@reddit
I think the point may be is what happens if the interest rate goes up and therefore the monthly payment. If then after 5 years then you may need another 40 year term to counteract this by spreading the interest over a longer period.
This comes down education, to get yourself into this position you are stretching yourself too far, not only that you are just looking at the monthly payment and not factoring in that rates change and that payment can go up and down. There will be a lot of people that will end up in this position because of their lack of financial knowledge and will be caught short, either having to extend periods or just cough up more per month and struggle getting by. It’s a real problem but you need to be aware of the risks before you sign up to a mortgage, let alone one that you need 40 years to pay off
St2Crank@reddit
Yeah, there’s risks to any mortgage I agree. I’m going to guess most people getting 40 year mortgages are doing it out of necessity though.
SnooMacarons4225@reddit
Absolutely but there will be some people who are aiming to keep their monthly costs as low as possible. If they do that then they don’t understand compounding and how much more it will actually cost them, that’s important so they can consider their best long term options, but the main thing that seems understood is that interest rates changes and can go as high as they want - something that’s been taken for granted for years but with the recent hikes and fixed rates ending people are now waking up the reality and are wishing they’d shortened the term or overpaid earlier if they could have
BabyHealthExpert@reddit (OP)
So if you need a 35 year mortgage, will you have enough equity in order to be able to get a 35 year mortgage this time around? Given all the interest is front loaded.
forgottenoldusername@reddit
Interest is not front loaded on mortgages in that sense.
If you remortgage a 35 year product after a 2 year fix is over - you certainly aren't liable to pay the other 33 years of interest.
Ok-Information4938@reddit
But why would you need to?
You can just product transfer with your existing lender? Mainstream lenders are all likely to always have reasonable transfer options.
My product transfers have always been pretty competitive. Not far from the very best rates.
You don't need to remortgage. Remortgaging just saves you a bit.
St2Crank@reddit
Interest isn’t front loaded, you’re paying off the interest up until that point. Unless you’re confusing with an interest only mortgage. You’re still paying off part of the capital at around 50% of your monthly payment. In theory yes it could be that it becomes too expensive for you later on. But that happens no matter the length or size of mortgage. You could have a 20 year mortgage and the property value tanks leaving you in negative equity. Everything is a risk and it’s up to you to make a judgement on it. Truth is, a lot of people will be getting extended terms of of necessity.
BabyHealthExpert@reddit (OP)
Gotcha. Maybe I'm using the term "front loaded" incorrectly. As my mortgage is mainly interest repayments for the first 5 years until I start actually paying off the balance.
Dull_Reindeer1223@reddit
None of the interest is front loaded. That's a US thing but doesn't happen in the UK
missuseme@reddit
If you stick with the same mortgage provider they don't carry out affordability checks when you renew a fixed term. So you may not be able to shop around, but you can get a new deal from your current provider.
MountainMuffin1980@reddit
Sorry, what is the point you are making here? I don't understand what you mean?
BabyHealthExpert@reddit (OP)
Sure so if you're renting a flat at say £1k per month. You're a first time buyer.
Given the costs of buying/selling a house, there is a break-even point in years where renting stops being the best financial option and owning a property is better.
So given stamp-duty (and your loss of first-time buyer allowance), solicitors fees (twice when buying the next property), removal men, estate agent fees (to sell the property) and that your mortgage repayments are mainly interest, you usually need to live in the property for 5-7 years in order for it to be a better financial decision than continuing to rent at the same monthly value as your mortgage.
In general, a 25 year mortgage tends to be around 3 years. 40 year mortgage is closer to 7 years.
forgottenoldusername@reddit
While I absolutely understand what you are getting at - there are two many variables here to make clear cut calls like that. Furthermore your calculations don't seem to take into account the rate at which rents and house prices are increasing.
Last year in England rents increased by approximately 5.5%, asking prices somewhere in the region of ~3.5%
Furthermore you don't seem to be taking into account house price rises. My first mortgage circa 2019 was 30 year, we sold 3 years later due to a change in circumstances and houses in the area had increased from circa 190k to 240k. Now obviously that's an extreme example in a very hot local market and not representative of the market as a whole - but it does emphasise how a black and white rule for break even doesn't really make sense for many people's individual circumstances.
Even in a scenario where an individual house doesn't not see significant value increase over say, 5 years - it still fundamentally skews the break even point once you factor in rent increases.
Though I accent there are absolutely cases where exactly what you say is true - I'm just trying to emphasise these broad brush figures rarely make sense for individual circumstances
Beautiful_Hawk548@reddit
The big difference is after 5 years renting if I want to move somewhere else, the old rent I paid can't be treated as an asset to pay for deposits/future rent payments and I can't port over my rental terms to another property. I can also be effectively be moved against my will.
After 5 years in a mortgage, if I really want to move, then I can port my mortgage over and outside of a really shitty situation, moving is generally more your own choice. The mortgage payments don't just disappear into the ether like rent payments either, they're now equity (if only small) that'll make the next mortgage a little better.
MountainMuffin1980@reddit
Right. But what point are you making I suppose? If you plan on living somewhere for 40 years what difference does it make? If you uy somewhere long term it will always be a better invesent over renting.
BabyHealthExpert@reddit (OP)
Because most people don't stay in the same property for 40-years.
So the point I am highlighting is that people are rushing in to property thinking that by default it's better for their personal wealth than it actually is.
MountainMuffin1980@reddit
Yeha but they don't move out back into rentals. They move to a new property and port their mortgage etc.
RetroRegretso@reddit
How do you know this?
Willing-Primary-9126@reddit
You can always cut the term length by over paying but ultimately 40 years is going to pass wether you buy a house or not & yes it's a joke house prices
NaniFarRoad@reddit
No, you can't always - we didn't know this was a thing with our first mortgage 5 years ago, so when we tried to repay, it just lowered monthly payments.
Rastapopolos-III@reddit
... So use the change from your lower monthly payments to overpay more?
My mortgage allows me to overpay up to 10% of the remaining balance every year before I incur any fees. It might still keep me on a 35 year mortgage by lowering my payments but at a point you'll have effectively paid it off early.
NaniFarRoad@reddit
No point overpaying when you're on a 1.77% rate, there's better use for the money.
Rastapopolos-III@reddit
So why did you try to over pay? Also it's unlikely you'll be on a 1.77% rate forever.
NaniFarRoad@reddit
To shorten the term - we had a windfall shortly after we obtained the mortgage (yay for relatives dying during covid!), and were considering overpaying. But if it only reduced the monthly payment, without shortening the term, there were better uses for the money. I had just assumed overpayment could always shorten the term, because that's what people always say on reddit (here, ukpersonalfinance, etc).
Morazma@reddit
How much does this differ from having the same payments on a smaller house over 30 years?
BabyHealthExpert@reddit (OP)
If you have a cheaper house you mean? I'm not sure I'll have to do the maths (ie ask chatgpt). I think you will have more equity built up compared to the value of the property which means you're in a bit of a safer position if you ever need to sell urgently at a small loss.
MountainMuffin1980@reddit
Stop using chatGPT for this stuff. Christ.
BabyHealthExpert@reddit (OP)
Nothing wrong with using it as a calculator
forgottenoldusername@reddit
I am by no means whatsoever against AI use, I'm using a model right now to run some statistical analysis.
But chatgpt and other LLMs quite literally do not work with numbers in the way, say, a calculator does. LLMs like chatgpt does not have an ability to run mathematics in an algorithmic way like a calculator does, its maths functions come entirely from referencing training data, not an ability to move numbers around accurately.
It's fine for simple maths, but when you start layering compounding interest, complex multi step calculations or even figures with a shit load of decimals it starts going wrong very quickly.
draenog_@reddit
It's a language model that predicts the most likely text from a prompt.
It's absolutely not a calculator, and using it as one is way more likely to give you errors than most other use cases of LLMs.
cardboard-collector@reddit
A calculator is purely functional without side effects, meaning for X input you will always get Y out, guaranteed. A large language model does not run pure functions and input output consistency is not guaranteed.
Same_Difference_3361@reddit
Nothing wrong with that. Unless you trust the result. Not long ago ChatGPT couldn't even do basic maths unless you ask it to write a python script for said calculation and run it and give you the result
humunculus43@reddit
Get extra long mortgage to lower monthly payments
Make sure it allows large overpayments
Overpay the mortgage at the 25 year rate even though you are on a 40
If you need money for a month or want to save a bit more lower the payments back to the 40 year rate whilst needed
It just gives you way more flexibility
BabyHealthExpert@reddit (OP)
It does but if there's an economic downturn there could be some real pain.
gareth1229@reddit
I have replied to you about the principles of the terms. Longer term in the market means better handling/averaging down risks such as economic downturn or rate increases.
Compare the risk of economic downturn or rate increase between a 25 year mortgage and 40 year mortgage. You will easily work out 40 year termortgage will be more superior.
The biggest root of subprime is that banks handed mortgages without mortgage affordability test (without due diligence) to applicants. This did not only give mortgages to those who cannot afford them, it also abnormally inflated house prices because everyone is buying without even taling risks into consideration.
humunculus43@reddit
Why? Its lower risk than everyone having 25 year mortgages
Atomlad360@reddit
I agree with your point that it's a sign of a stressed and stretched market, and that's not ideal.
I think one aspect you are missing though is that people can reduce the term of their mortgage later on. Especially relevant if they're expecting an inheritance.
I took out a 40yr mortgage initially, but then managed to bring it down to 30yrs due to overpayments after my income rose.
Obviously things can go wrong, lose a job etc. But that's true of a shorter term mortgage as well.
bekbok@reddit
I did similar with dropping at a remortgage but in my case my finances had improved and I'd only gone up to 40 years as I'd needed to buy an ex out as well as paying an ERC so I took what I could get to stay in my house.
Iirc I went from 40 years with a 2 year fix (so 38 years left at the end of the fix) to a 28 year fix. I looked at the rates with my existing lender and they weren't great and I could get much better with a remortgage. To give an idea with fake numbers, existing lender was offering £1,000/month on a new fix, other lenders were offering £800/month on a 38 year mortgage or I could pay £1,000/month on a 28 year term with a different lender so I went for the 28 year.
Ok_Pomelo_3460@reddit
It’s less about risk and more about access actually..... for lots of people longer terms are the only way to get on the ladder at all.
The trade off is you pay more over time, but many plan to refinance or overpay later, not stick with 40 years forever.
handtoglandwombat@reddit
But if the forty year mortgage catches on, won’t house prices increase to make it the new thirty year mortgage? Refinancing these seems like a pipe dream.
Ok_Pomelo_3460@reddit
If longer terms become the norm, prices could adjust and eat up the benefit.
I think refinancing isn’t guaranteed either...,.. depends moreon rates and personal situation.
handtoglandwombat@reddit
I hadn’t realised we were doing forty years in this country. Last I heard of it was an inane trump policy, so I’m a bit shocked. We can make whatever changes we want on the demand side, they’ll just be negated by the supply side. Because treating property as a speculative asset incentivises restricting supply. And as you say, that’s before you even factor in what the wider economy is doing whenever the time to refinance comes.
gareth1229@reddit
Not really. Sub prime is caused by no due diligence when approving mortgage to applicants. Basically, what happened was that banks handed over mortgage to anyone regardless of whether they can afford it. The 40-year mortgage does not imply that, it still ensures mortgage applicant can afford using the standard affordability test.
And stretching out the term means it can average down the risk better. Remember the principle when dealing with higher risk - the longer the term, the better it manages risks.
Legitimate_Impact@reddit
“I asked ChatGPT to do the calculations” PLEASE JUST DON’T, ChatGPT is useless at calculations!
Vayne7777@reddit
Don't use ChatGPT as a calculator. ChatGPT is a LLM and takes a best guess at answering your question. It does not do an actual calculation and will convincingly tell you the wrong answer.
If a 40 year mortgage cost less than renting it may be a better solution for people.
Stamp duty in England only applies for properties above £300K as a first time buyer. The cost to buy a property is about £5K - £10K (sollicitor, conveyer etc).
It really depends where you live in the country: £300K in the London area will not take you far (especially when avoiding leasehold/ service fees) but in other parts of the country it's much easier to find something. Of course it all depends on how long are you willing to commute, social aspects etc.
Whether you have a mortage or you are paying rent: if you lose your job it can be bad news in either situation if you don't have 6 - 12 months emergency funds or the bank of Mum & Dad. At least with a mortgage as you're paying off your mortgage you will get more favourable conditions as you go along so the monthly cost will decrease over time.
There is no such thing with renting where it's the opposite and many landlords will do the absolute minimum on the property that you're renting. You will also have to deal with regular property inspections that invade your privacy, poor maintenance and the landlord can decide at any time the contract will not be renewed and you'll have to pack up your stuff and hope to find another place.
While preferred is that you buy all cash or perhaps with a 25% deposit and pay off in 10 years for many that is not achievable anymore as the discrepancy between wage and house prices is far greater than it was in 1970 - 2000.
Disclaimer: “I am not a licensed financial advisor or planner. What I share comes from my own reading and personal experiences. Please talk to a qualified money expert before making any big money choices based on what I say.”
Simonm16@reddit
We took a 40 year mortgage out to keep the monthly as low as we could get it. But we then overpay £200 a month. If we can get lower interest rate after the initial fixed period. Whatever the difference in drop is, will then get overpaid as well. Should massively reduce the overall term if things work out
Ok-Information4938@reddit
Some catastrophising here.
You can just take product transfers with your existing lender if you can't remortgage?
bluejackmovedagain@reddit
It depends how old the buyer is. When we bought our first place we had a 35 year mortgage, as we were fairly young and had a reasonable expectation that we'd both be on appreciably higher salaries by the time we came to remortgage. Even with a low deposit and taking interest into account, buying was a better financial move than renting for a few more years because average rents in our area were so ridiculous.
draenog_@reddit
Uhh, I did.
My take home pay is ~£2300 a month, my mortgage payment is £570 a month, which is just shy of 25%.
I had a mortgage in principle approved for up to £207k, but went for a £170k house with a 20% deposit, so my actual mortgage is £136k.
Borrowing right up to the limit sounded like a miserable way to live. I think that would have worked out to £1000 or more a month.
At some point in the future, when I get a pay rise or decide I want to move in with a partner, I can consider remortgaging to a shorter deal and save on some interest over the longer term. But right now, as a young professional living alone, greater flexibility in my monthly budget is much more important to me. And I can always make overpayments if I want to!
Have you ever rented before?
You can't find anywhere nice for less than £700-£1000 a month across a lot of the country right now.
Up until today, your landlord could just decide to make you homeless on a whim.
This is the first time since leaving my parents' house as an 18 year old that I've had a home that hasn't had a horrendous damp problem. And when maintenance issues do crop up, I can just fix them without having to nag someone else.
I was in my late twenties before I could hang art on my walls (at a rented house that I still wasn't allowed to nail into the walls at, but that did at least already have nails and picture hooks dotted around). You can't decorate a rented house, or repaint the walls, or choose new flooring. You often aren't allowed to get a pet, and even if you do find a landlord that will allow it, you have no guarantee that you'll be able to find another one in the future. You might end up homeless with your pet or having to surrender it to a rescue centre. Owning gives you agency over your home.
What you're describing there is a great reason to minimise your mortgage payments with a 40 year term. If interest rates rise, I have plenty of room in my budget to pay more if I really have to. If I had a 30 year mortgage things would be tighter, and mortgage providers would probably be less willing to move me to a 40 year mortgage.
GlumAd9856@reddit
I don't really see why a 40 year mortgage is more problematic than a 30 year one? Ok, you're right that it might be harder to find banks willing to offer you a remortgage deal at those terms, but once you get to 35 years left that becomes pretty normal.
The banks are still doing their normal 'stress tests and affordability checks. It's likely that most people in their 20s today will work until they're 70. I just don't really see what the issue is with a 30 year old taking out a 40 year mortgage. They can always cut the term length down at some point in the future if they have more income.
snoozinghamster@reddit
I got a 40 year mortgage, cause it was the only way I could afford the house. Which yes is annoying but got me out of renting a bedroom. I technically could have got a 38 year one instead, but stuck to the 40 to keep the payments minimised, made it easier to rebuild my savings back. The mortgage rate is higher than I’d like (4.54%) but I can whack the extra in investments and should still be better than overpaying. But have that option if i needed to. Did a 5 year fix (nationwide 5.5x income limited to 5 or 10 year fix) which I did prefer anyway just to have costs fixed for a decent bit. Has allowed time for salary to increase so no concerns re remortgaging at the 5 year point (assuming the word doesn’t go totally to pieces in the next 3 years)
Evening-Tour@reddit
Anything to keep the market doing up, will it goes pop.
2008 again.
SnooMacarons4225@reddit
If they want to keep the market going it’ll just get extended, I’m sure I heard about a 50 year mortgage at one point.
In the future you can extrapolate and it wouldn’t be inconceivable that you have a forever mortgage (the banks and property market would love this!!!!) where you never fully pay it off and just pass on the mortgage to your kids when you pop your clogs.
fussyfella@reddit
In Japan (and probably other countries I am not aware of), very long mortgage terms that are transferable are very common. When you sell, the new buyer takes over your mortgage directly (rather than the payoff new mortgage cycle we get in the UK), and if the property is inherited the mortgage rights transfer with it. The kids can sell if they want (and pay off the mortgage) or just take it over and move in, or let it out. It is not the end of the world.
In fact if not for quite the same mortgage length, similar things can happen in most of Europe as Civil Law systems typically have debt tied to property not people, so you can sell the property and the new owners take over the debt. In the UK (and other Common Law systems) the legal situation is slightly different as although the debt is backed by the property (meaning it can be foreclosed and sold to pay off debt), the debt is still with a person (or people, or a company).
BabyHealthExpert@reddit (OP)
It seems that way. But there's also conspiracy theories about the likes of Blackrock buying up houses for buy-to-let. So a property crash and seeing everyone default would be a good thing for them.
lizzie_knits@reddit
Firms like Blackrock are in the build to rent market, they’re not hoovering up random houses.
nivlark@reddit
The market isn't going up though, and hasn't been since 2008.
House prices have been flat in real terms for the past 20 years - the reason affordability has fallen is that wages tracked well below inflation over the same period.
Regular_Zombie@reddit
It's been going down in real terms since 2022. Fortunately people don't understand economics so aren't in a panic about it.
OnlymyOP@reddit
That's the problem the market isn't going up due to various successive hits to the Economy.
Breaking-Dad-@reddit
A 40 year mortgage is likely cheaper than renting. And you are building equity in your property (hopefully). Mortgages tend to become less of burden the longer you have them - inflation, wage increases and career progression make the payments a smaller percentage of your income. So, after 5 years, you may want to shorten the term, or overpay, reducing your mortgage to a more realistic time. If wages don't increase but interest rates do then you can end up in a bit of a hole, also negative equity is a risk. But I bet it is still cheaper than renting right now.
HP_10bII@reddit
Significantly cheaper, and definitely an inflation play.
Gets very comfortable once you get below 75pc
VolcanicBear@reddit
When you need to renew your mortgage, you generally go for a better term and interest rate as the LTV should have drastically improved.
My mortgage was initially 25 years, but because we did have kids we cleared it in 15.
What happens if the housing market crashes? Well it probably crashes for the county, so whatever property you move to should be proportionally cheaper if you decide to move during the middle of a market crash for some reason.
Property should stop being viewed as an investment for financial reasons, and an investment in your house. Not a guaranteed way to make money and move to a bigger place. That should be done through savings and career advancement. I thought people were finally sick of constantly climbing housing costs?
BillyBlaze314@reddit
As I always say (and usually get corrected by someone who is book smart and wants to prove it) is that a house is not an investment at all, it's the biggest liability you will ever take on.
Sure there are ways to borrow against it and use equity for more advanced investing strategies, but realistically, how many people are doing that?
Used-Fennel-7733@reddit
I had a look yesterday for a laugh. If I were to do a 3 years it would be 1.6k, 35 years for 1.5k, 70 years for 1.25k, hardly seems worth it.
Early_Retirement_007@reddit
How many times over are you going to pay back the capital? Joke and scam.
BabyHealthExpert@reddit (OP)
We have a love affair with owning property and it seems like corporations are exploiting that now.
Logical_Strain_6165@reddit
When the alternative for most people are private landlords, you can understand why.
shredderroland@reddit
How much is inflation going to eat into the interest over 40 years? Mortgages are still borderline free, even today.
Early_Retirement_007@reddit
I get the concept of inflation and time value of money. But that is the wrong question - what is the amotisation schedule on such long deal? I bet it will be a longtime before you start chipping away at the capital.
Regular_Zombie@reddit
What's a trap for some people is a perfectly valid choice for others. I don't need to have the mortgage paid off before I retire because I invest very heavily in a private pension which I can use to pay/clear it when the time comes. I'd rather have lower payments now and invest the difference.
hotchy1@reddit
I done a 40 year mortgage. I could overpay down to what a 25 year mortgage was but at the same time, could then drop my payments back to the 40 year amount if I hit hard times. I see it as a safer option, not over stretching. Obviously some do, but think about it.
House prices 40 years ago.. you could probably pay that off with a years wages these days. If inflation keeps up we'll suddenly all be millionaires, only the million wont even buy a car haha.
zephyrmox@reddit
You are doing the best thing. People are incredibly irrational about mortgage debt. Maximising flexibility and investing/overpaying is the best thing to do.
zephyrmox@reddit
Longer the mortgage the better. I'd rather keep money invested and likely outpace it than pay off my house.
Adanar01@reddit
I have a 40 year mortgage.
My options were, keep renting at over £1000 a month for tiny properties that I have no say in and keep getting badgered by landlords that don't bother to maintain the property, or, buy my own house that I can do up and hopefully get more for than what I paid so that I can have a lower term mortgage next time round.
I'm paying less in mortgage payments and I know if I want to change something I can just do it, I don't have to worry about someone coming round and picking at the wear and tear on the property because I had the fucking audacity to live in it.
Gold-Hippo-3291@reddit
Your current lender will offer you a new deal when the fixed term expires, without the need for further affordability checks. You only need to 'reapply' if you want to change lenders or move house.
Unfortunately retirement ages are only going to increase. With the cost of living and housing increasing, I think the longer terms are a way for people to still get on the ladder. I took out a 35 year term but have overpaid to bring it down. At least at the end of the term I will not have any mortgage or rent due. And even though my mortgage payments have gone up due to the higher interest rates, the rental prices in my are have sky rocketed way more. I could not afford the current market rent on my property but I can afford the mortgage payment. So I am grateful I took a longer term that allowed me to buy it rather than stay at the whim of the rental market and get priced out of the area.
Same_Difference_3361@reddit
Speaking of. In our local Sainsbury's we have two women that are 67 and 72 years old respectively. Only reason they are still working is because they only ever rented and with their husbands dead, they cannot afford to retire as pension is not growsing as much as rent does.
68_namfloW@reddit
5% down and a 40 year mortgage? Sounds exciting.
tarris93@reddit
You get the lowest possible monthly payment, which is usually a 40 year term. Then you overpay when and where possible to bring the term down. You can increase your payment but not reduce it.
I started off overpaying, moved and had kids so stopped overpaying. Will do it again once finished with nursery etc.
No-Photograph3463@reddit
I don't think so tbh.
You still have far more stringent affordability checks than you used to, so tbh it's pretty difficult to be able to borrow so much money you can't afford the repayments nowadays bar losing your job etc, but even then your safer with a mortgage than a rental which would get rid of you far faster.
Also 40 year mortgages are a good way to get on the housing ladder whilst still having some money 'spare' for either improving the house, having kids or enjoying yourself when young and with a lower salary. At the end of the fix you can just change to a shorter mortgage term anyway, it's not like the US system where your in that deal for 40 years.
greenfence12@reddit
Nothing to stop you taking out a 40 year mortgage just to get on a property ladder, then, if/when you are in a better financial position, decrease the term when your fixed rate comes up renewal, it's better to be paying something off on an initial 40 year fix than be paying nothing off and giving everything to a landlord
ceb1995@reddit
Got a 40 year mortgage with a five year fix at 22 and 26 years old in 2018 with a 5% deposit and we ve renewed it once so far, I wouldn't say it's done any harm as the amount of equity we ve gained in 5 years put it from 95% to 63ish ltv without overpayments. Our payments went from 666 to 627 a month so it's always been easily manageable.
All depends on how much you borrowed in the first place as we only took out 132k and I had to stop working after our disabled son was born, if we were renting we d be trapped for years in a property that didn't meet his needs with landlords likely increasing rent over time, but as we own it we re going to get a wet room in without anyone's permission.
Flat_Development6659@reddit
I don't think the mortgage term matters much in a lot of cases to be honest.
My last houses mortgage term was 20 years, our current term is 30 years. Houses generally go up in value so as long as you're not sitting at 90% LTV you're likely golden.
Realistically a lot of us are probably going to downsize in retirement, my current house is a 4 bed detached, we don't need that when we get old, assuming we stay in the country we'll likely buy a small bungalow and have a few hundred grand in cash to add to the retirement fund. Based on this it doesn't really matter if you're fully paid up or not, I imagine we will be but if your mates jump on a 40 year mortgage term and then retire in 30-35 years they'll still have significant equity to buy something outright.
Zestyclosereality@reddit
My partner and I bought our first home two years ago with a 40 year mortgage. We could have done 35 years but chose to go up to 40 to keep our monthly payments a bit lower so we had more disposable income for renovations we had planned.
We also fixed for two years, fast forward to the start of this year and we remortgaged on a significantly lower rate so we have been able to drop our term down to 30 years while slightly lowering the monthly payments.
Also, because of the work we'd been able to do to the house in the last two years (thanks to the lower monthly payments) we were able to access a better LTV rate as the value of our house had increased.
It's only our experience but a 40 year mortgage term, with a 2 year fix, could not have worked out better for us.
Bunkton@reddit
I have a 40 year mortgage. I chose it over a 25 year because it gives me flexibility. I can chose to overpay if I want to or I can use the difference in monthly mortgage cost to invest and hope to make more than 4.1% (my interest rate), if I do then I'll be better off long term.
zonked282@reddit
in my experience with looking for houses , the rate at which house prices are rising is the biggest motivating factor to just get onto the ladder.
every year house prices go up by around 8%, this means that by delaying buying that nice 200k for a year or 2 to get together an extra 20k deposit, the house price has increased so much that your additional payment has been rendered nearly utterly moot.
also its not like the conditions for renting are any different in the scenarios outlined, costs for mortgages might well increase every renewal, but when renting the cost increases EVERY YEAR. if you lose your job i imagine losing your mortgage and home is a slower process than being kicked out of a rental for non payment as well.
Infections95@reddit
33 year is the average now. Id recommend to most people taking a 40 year mortgage and investing/pension the difference of a reduced term.
No it's not the next sub-prime bank regulations are actually easing still as post 2008 they were far far too strict. Defaults are incredibly low. So much so that it's hard to accurately create models that are accurate as data is poor.
If you lose your job on renewal you can still move onto a product you just can't move lenders. We stress affordability and mortgage rates at 8% so for now it's perfectly within tolerance.
box-o-locks@reddit
If you don't offer larger loans over longer terms people complain they can't buy a house and the government need to do "something".
But this pushes up prices.
And then people complain they can't afford to buy a house and the government need to do "something". So banks increase the amount they'll loan and the length of the loan.
But this pushes up prices.
See how this works?
Jingoldsby@reddit
Worse thing that will happen is that at the end of your fixed your wont be able to refit and end up on the SVR.
Will probably still work out cheaper than renting but will mean financially things may be a bit harder.
BillyJoeDubuluw@reddit
That’s ultimately a long time to be tied to a mortgage.
If that was my only option for getting a mortgage, I would genuinely be looking at alternative methods to get on the property ladder and/or build a portfolio of investments.
Of course, that’s easy to say when not faced with the proposition and none of us can speak for everybody.
Historical_Cobbler@reddit
Not at all, your missing the point of lower rates as well. I would paid X a month, so when the rates are low I’m overpaying and bringing my term down. I had a 35yr mortgage.
When you renew you fix at a rate that suits, I was fortunate to 5 year fix at 1.9%, my repayments stayed the same as when it was 4%. Took years off.
I think the average time people stay in a house is >9 years.
Klichouse@reddit
Well there's fuck all anybody can do about it.
People are aware a 40 year mortgage is less than ideal.
AutoModerator@reddit
Please help keep AskUK welcoming!
When replying to submission/post please make genuine efforts to answer the question given. Please no jokes, judgements, etc. If a post is marked 'Serious Answers Only' you may receive a ban for violating this rule.
Don't be a dick to each other. If getting heated, just block and move on.
This is a strictly no-politics subreddit!
Please help us by reporting comments that break these rules.
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.