OAP, But Still Paying A Mortgage

As the Bank of England put up their base rate by another quarter percent this month, it’s not getting any easier for young people to afford their first homes, but not to worry the mortgage lenders of the UK have been working on this problem, and after years in some dark basement tinkering with the figures and playing with the numbers a cry of ‘Eureka’ could be heard throughout the lending world as one clever sole cracked the problem. Well, maybe I should have left it at ‘cracked’ as a better way of describing it. The thing that amuses me is how fast a bad idea can spread between institutions desperate for the business of the illusive first time buyer, as there seems to be a glut of mortgage lenders jumping on this insane band wagon.

The solution they were so proud of is the 57 year mortgage. Yes you heard/read me right. Not content with the 25 year mortgage that most people take up in the UK they have come up with a brilliant plan for would be home owners. Why not charge you a tiny bit less each month and you could carry on paying them into your old age.

It sounds like a good way of keeping the costs down, surely if you’re going to be paying off a mortgage over such a long time the monthly costs that can cripple some new home owners should be far lower…shouldn’t they? Actually on a £150,000 mortgage (if you’re looking to buy in the South East of the country you’ll be laughing at this point at the shear silliness of the idea of being able to find a property for that figure, but bare with me, it’s just an example) the saving is less than £175 a month, but as you are paying the loan off for more than twice the time the amount you’ll repay is over £275,000 more in the end than you would pay for a standard 25 year mortgage.

Before you run out and get one of these just stop and think for a moment. If you take this mortgage out at the tender age of 18, you’ll not pay it back until you’re 75 years old, and by then you’ll have paid back almost £600,000 for a £150k mortgage. If you retire at 60 or 65 you’ll have to hope that you’re property is worth quite a bit more than you paid for it because you’ll still have 10-15 years of payments still to make.

Of course there are other far more responsible (slight sarcasm) lenders who are offering just 40 or 50 year mortgages, but I think you get the gist of my opinion on this by now.

Understandably this new mortgage type was met by experts with an element of disbelief. Words like “false economy” and “madness” were thrown around like a dog with its favourite chew toy and it’s not surprising to this observer. With the Bank of England predicted to raise its base rate once again at the beginning of 2007 it is possible that first time buyers though desperation might consider one of these mortgages. Please don’t, or if you do make sure they do not lock you in so that in a few years time you can convert it to a sensible mortgage, one where you’ll only pay twice as much as you borrowed in interest!!