Member Article

Mortgage Market in need of a shake-up

Borrowers will increasingly be forced to turn to longer term mortgage deals as house prices rise, unless changes are made to the mortgage market, according to a North Yorkshire-based firm of finance experts.

Richard Rutherford, mortgage manager at independent financial planning and investment management firm Gale and Phillipson, said: “Mortgages that extend over 35 years for first-time buyers are increasingly becoming the norm, and may even overtake the more traditional 20-25 year mortgages. With interests still at a record low, it should be easy for people to find a good deal on a shorter term mortgage, but the rise in house prices means that this simply is not the case.”

The average house price last year grew at five times the rate of average earnings in the UK. Bucking the national trend, house prices fell by 1.4% in parts of the region last year, according to figures from the Land Registry. However, 92 per cent of home-owners surveyed by Zoopla expect property prices to continue marching upwards into this year – with a rise as high as 7.2 per cent.

Home-owners’ high expectations for property prices will not bring comfort to people struggling to get on to the housing ladder. Indeed, a survey from homeless charity Shelter found that nearly half of private renters are unable to save any money towards a deposit. The situation for existing home owners is also proving tough, as 26 per cent of those surveyed by Zoopla think it is harder to get a home loan now than it was three months ago.

Richard said: “With price of the average home expected to rise by 50% in the next 10 years, buyers are having to borrow more, and spread the cost over a longer period, just so they can afford the payments. For example a £100,000 loan spread over a 25-year term, would cost an average borrower £500 per month. The same loan over 35 years, could cost just £415 a month.”

“The Government have now launched schemes such as the Help to Buy ISA, and lenders are certainly regaining their appetite in respect to lending to First Time Buyers with reduced rates and innovative mortgage products.”

What then, can be done to help ease the pressure on those looking to buy? More regulation, according to Richard: “A longer term means more interest and more debt. The Financial Policy Committee, which looks for threats to UK financial stability, is expected to focus again on the mortgage market over the coming months. One thing they could do that might help home-buyers would be to look at the possibility of bringing mortgage tenure – the term over which borrowers agree to pay back their loan – under the control of regulators.”

But in the meantime, for those already signed up to long term loans, all is not lost. Richard says: “Longer term mortgages are becoming more common reflecting client’s budgets and how lenders assess affordability. The initial term however is just a starting point and many things can be done throughout the mortgage to reduce the term. “

For information, factsheets, guides and videos, visit the Gale and Phillipson resource library at www.galeandphillipson.co.uk/resources

This was posted in Bdaily's Members' News section by Gale and Phillipson .