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Housing

Will 50-year mortgages help tackle the housing crisis?

They won’t help build more houses and could leave your children in debt but can 50-year mortgages make buying a home more affordable?

Fifty-year mortgages are the latest tactic the Westminster government is reportedly considering to tackle the housing crisis.

The housing market has seen soaring prices in the last year and is only now starting to see growth slow. The price surge has moved home ownership even further away from people looking to get on the property ladder.

That’s an issue Conservative ministers want to tackle with so-called intergenerational mortgages which allow people to pay more for properties by taking on longer-term mortgages and paying lower monthly payments.

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Last week Boris Johnson told reporters at the NATO summit in Madrid he was looking at “all sorts of creative ways to help people into ownership” before confirming that included longer-term mortgages.

He added: “Last year we had 400,000 first-time buyers. That’s a great number, we’re starting to turn the tide, but it is crucial for this government and for our overall economic story if those numbers continue to be strong.

“We need young people to have the confidence, to have the deposits, the mortgage packages to be able to get into ownership.”

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It’s unsurprising that getting more people to become homeowners is a Tory priority.

At the 2019 General Election, 57 per cent of owner-occupiers and 43 per cent of mortgage holders voted Conservative compared to just 22 per cent and 33 per cent respectively for Labour.

Recent housing announcements like the Right to Buy extension to people living in housing associations or the ‘benefits to bricks’ plans to allow people to use housing benefit to go towards a mortgage have been aimed at turning so-called generation to rent to generation buy.

But 50-year mortgages cannot tackle the issue of affordability, according to Freddie Poser, a director at housing campaigners Priced Out.

He cites a continued failure to build enough affordable homes – the government has recently been evasive on its 2019 manifesto commitment to build 300,000 homes a year in England – and the future risks of loading debt on to the next generation.

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“I think it’s an absolutely terrible idea. It’s just another example of the government punting down the road the real issue, which is the lack of supply in the housing market,” said Poser.

“We haven’t built enough homes, everyone knows that now. The government also knows it is politically poisonous to try and fix that issue. Things like the Right to Buy for housing associations and any expansions to help to buy are demand side issues of what is fundamentally a supply crisis.

“I can’t see how this will help. I think, even before you take into account the effects of the policy, the idea that you should have to sign your unborn potential children up to debt in order to pay off a mortgage is particularly weird. It’s also quite clearly going to inflate prices further rather than tackling the core of the issue.”

The cost to future generations is also a concern to Graham Taylor, of mortgage broker Hudson Rose, without a guarantee that the loans would remain affordable in the long-term.

“On the face of it, this seems like a great idea, but the problem remains that the loan would need to be affordable for all the original applicants and also the children who inherit it,” said Taylor.

“Otherwise, the children could risk inheriting a liability they are unable to manage which, when secured against your home, has catastrophic consequences.”

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Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, said 50-year mortgages do not deal with another barrier to home ownership – how wages have not kept up with house prices.

House prices have risen more than 10 per cent in the last year at a time when wages have fallen in real terms as rising inflation and cost of living has swallowed up pay rises.

“I feel that Boris Johnson is coming at this from the wrong direction,” said Taylor-Barr.

“It is not the mortgage market that is preventing people from becoming homeowners, it is the cost of property in relation to people’s earnings.”

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