Mortgage specialists at Mojo Mortgages have warned that proposals for 50-year terms, recently raised in the United States, could leave UK borrowers facing far higher lifetime costs, despite the appeal of lower monthly payments.

John Fraser-Tucker, head of mortgages at Mojo Mortgages, said: “Donald Trump’s recent musing about the introduction of 50-year mortgages in the US has certainly stirred the pot, igniting a debate that has implications far beyond American shores.

“While the prospect of significantly lower monthly repayments might sound like a dream come true for many struggling to get onto the property ladder, it’s crucial to look beyond the immediate appeal and consider the long-term ramifications.”

Fraser-Tucker added: “At Mojo Mortgages, we’ve seen firsthand how homeowners navigate the complexities of their biggest financial commitment, and while innovation is welcome, we believe a 50-year mortgage, in its current conceptualisation, could ultimately prove to be a costly burden for many home-buyers.”

AFFORDABILITY PRESSURES DRIVING LONGER TERMS

The firm notes that rising costs have already prompted many UK borrowers to extend their repayment terms. Where a 25-year mortgage was once the norm, 30 and 40-year terms have become increasingly common as households look to reduce monthly expenditure.

Fraser-Tucker said: “However, the initial positive reaction to reduced monthly repayments quickly dims when you consider the true cost of such an extended commitment.

“While the immediate burden lessens, the total amount of interest paid over five decades would be astronomical. It’s a classic case of paying less now, but significantly more later.”

Mojo Mortgages highlights how costs grow even before reaching 50 years. On a representative £273,000 property with a 20% deposit, a loan of £218,400 at a 4.3% five-year fix would cost £1,190 per month over 25 years with total repayment of £356,933, including £138,533 in interest. Over 40 years, monthly payments fall to £955, but the total repaid increases to £458,164, including £239,764 in interest. Extending to 50 years would widen the repayment gap significantly.

IMPLICATIONS FOR BORROWERS AND LENDERS

Given that the average first-time buyer in England is 34, a 50-year term would see many repaying loans until their eighties. This raises questions around affordability assessments, lending into retirement and the ability of borrowers to demonstrate long-term income.

The broker adds that life events, career changes and financial shocks become more difficult to manage when tied to a loan lasting half a century. Equity build-up would be slow in the early decades, limiting the ability to remortgage or release value. UK borrowers would also be exposed to multiple rate cycles, as long-term fixed rates of the kind found in the US remain uncommon.

QUESTIONS OVER MARKET SUITABILITY

Lenders may also face increased long-term risk, with greater uncertainty around borrower health, income stability and longevity. This could lead to higher pricing to offset the risk of default, which would diminish the headline affordability benefit.

Fraser-Tucker said: “While the idea of a 50-year mortgage might offer a tempting solution to the immediate challenge of housing affordability, it’s a solution with significant long-term drawbacks.

“It risks trapping homeowners in a cycle of extended debt, vastly increasing the total cost of their home, and reducing their financial flexibility for decades to come.”

He said: “At Mojo Mortgages, our focus remains on empowering homeowners with the best advice and the most suitable products for their individual circumstances.

“While we understand the desire for lower monthly payments, we believe that sustainable homeownership is built on a foundation of responsible borrowing and a clear understanding of the true long-term costs.

“Rather than simply extending terms, we should be exploring more holistic solutions to the housing crisis that address both supply and affordability in a way that truly benefits homeowners for generations, not just for the next month’s payment.”

The firm signposts buyers to its Mortgage Affordability Calculator to assess potential repayment options.

*Based on UK House Price Index data, July 2024.
**Based on the average fixed interest rate across Mojo Mortgages platforms during August 2024.