New research reveals the eye-watering cost of a 50 year mortgage with current rates.
Sky High Interest Rates
Research by estate and lettings agent,聽Barrows and Forrester, has revealed the聽eye-watering聽sums of interest that homebuyers could be facing, should they buy into the government鈥檚 latest plans to 鈥榟elp homebuyers鈥� by offering them a 50 year mortgage.聽Before his long overdue fall from grace, Boris Johnson鈥檚 government announced they were currently considering 鈥榰ltra-long mortgages鈥� as a 鈥榗reative way鈥� to help hard pressed homebuyers negotiate the ever increasing cost of purchasing a property.聽Barrows and Forrester has taken a look at what this could look like when it comes to the interest paid over a 50 year term for a buyer in today鈥檚 market. Working on the basis of a 75% loan to value, the average UK homebuyer today needs to borrow 拢210,872 once a 25% deposit (拢70,290) has been placed.
Currently, the only mortgage product similar to the government鈥檚 50 year proposal is a 40 year term offered by the likes of Habito.聽With an average fixed rate of 6.19%, this would require a monthly repayment to the tune of 拢1,140, a whopping 拢1,088 of which would be interest paid on the loan.聽Over a 50 year term, this means a homebuyer opting for a 50 year mortgage would pay a total of 拢472,984 in interest alone – over double what they initially borrowed.聽This climbs to 拢683,855 when considering the total cost of the loan and when factoring in the 25% deposit, it would place the cost of homeownership at 拢754,145 – almost three times the original value of the property.
Is It Worth It?
Based on historic house price data and price forecasting, Barrows and Forrester estimates that the average UK property could be worth 拢541,555 in 2072. So at first glance, the answer would be no. However, when factoring in historic inflation rates and also forecasting inflation going forward, this average property value could climb to almost 拢2.3m, meaning that even when paying through the years on a 50 year mortgage term, you could still see a healthy return on your investment when it is finally paid off.
James聽Forrester, Managing Director of Barrows and Forrester, commented:
鈥淭here鈥檚 certainly nothing creative about the government鈥檚 manipulation of the housing market. Their failure to build more homes while consistently introducing schemes to boost buyer demand has caused house prices to climb to record highs.
Now they鈥檙e considering snaring buyers into 50 year mortgage terms, a move that plays on the desperation of many to own their own home, who simply can鈥檛 contend with the high price of buying in today鈥檚 market.
In doing so, these buyers would essentially be stuck renting from the bank well into their golden years, paying exuberant levels of interest for the pleasure of doing so.鈥�
