On Thursday I become a homeowner. It is a dream that I have achieved precociously, thanks to the generous support of my parents.
But the joy (and relief) is accompanied by the knowledge that when I am handed the keys, I am placing a 40-year burden on my shoulders. If I never move again, I will pay off this mortgage in 2064, when I am 63.
My 40-year mortgage might not quite be into my retirement but this is only because I am lucky enough to be a first-time buyer more than 10 years before the London average of 35, and because the idea of an early retirement is a fantasy.
It doesn’t change the fact that the interest which will be added over those four decades is eye-watering. Once my five-year 3.99pc fixed term ends, my mortgage will revert to NatWest’s variable rate.
If I don’t remortgage, current predictions show that I’d repay £489,266.76 – or £3.14 for every £1 borrowed – over the 40-year term.
Yet after talking to my mortgage broker, taking on the longest possible term was the obvious decision.
Why wouldn’t I, I reasoned, when it will mean my monthly repayments are £400 less than the rent I was paying to live in a shared flat? Nothing is worse than paying rent and watching money effectively go down the drain. Even without a great sage to tell me what I’ll be doing in 10 years (or even in 10 minutes), the stability offered by being a homeowner overrides most of my concerns.
But it’s likely that this will not be the only time I take on a very long mortgage term. I’m moving into a two-bedroom flat in Zone 2, so predicting that I will live here for 40 years would be tantamount to saying I will never marry or have children.
When I sell, I’ll likely pay off the remainder, pay back my dad, and take on another lengthy term on my own – which will stretch long past any attractive retirement date. This is the real worry; will starting on such a long term mean that I can effectively never secure a shorter one?
For older first-time buyers, being unable to secure another longer term mortgage in five or 10 years’ time might mean they can’t afford to size up. They’ll be stuck in starter homes, effectively blocking those trying to get on the ladder behind them.
The news this week that more than 40pc of mortgages being taken out will require repayments into retirement age is no great surprise, given the unaffordable nature of the current housing market.
Former pensions minister Sir Steve Webb said that “serious questions” should be asked about whether borrowing that runs into retirement was in the best interest of homeowners.
But the truth is that I couldn’t, even with my family’s help, afford to do this without stretching my loan as far as I can – despite earning well over the national average for my age. Neither could many others, and this is the true indictment of the housing market.
When I spoke to the UK chief executive of a major lender earlier this year, he said he would be open to more innovative mortgage products if it would help more homeowners on the housing ladder.
But even when they are offered, many of the schemes are not made widely available. Critics of Yorkshire Building Society’s 99pc mortgage said in March that its restrictions on new builds and flats would mean most buyers would not be able to use it.
Focusing on mortgage products is ignoring the true root of the problem. Trying to regulate demand can not be as powerful as increasing supply.
House building targets should be brought in line with those of other similar developed countries and the Government should cut through the red tape that is stopping them being met.
Then lenders might not need to risk mortgages that stretch into retirement, which simply store up problems for later life.
But there’s no point me worrying about it now. I’ve got a flat to furnish.
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