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Interest paid on a 50-year mortgage term could total £500,000
Mortgages that can be passed from one generation to another have recently been suggested, but no firm proposals have been made
Intergenerational mortgage terms of 50 years could see homeowners pay half a million pounds in interest alone, calculations reveal.
Earlier this month, Prime Minister Boris Johnson said the government was looking at “all sorts of creative ways” to help people own a home.
One suggestion was a 50-year mortgage term which could be passed between generations. The idea was met with both support and criticism.
And now, calculations from estate and lettings agent, Barrows and Forrester, revealed the “eye-watering” sums of interest that homebuyers could face with such a scheme in today’s market.
Based on a 75 per cent loan to value, the average UK homebuyer needs to borrow £210,872, once a 25 per cent deposit of £70,290 has been saved.
And using the average fixed rate of 6.19 per cent offered by Habito on its 40-year term, the only mortgage product similar to the government’s proposed 50-year term, it calculated monthly repayments would stand at £1,140 – of which £1,088 would be interest paid on the loan.
Over a 50-year term, this means a homebuyer opting for a 50-year mortgage would pay a total of £472,984 in interest alone – over double what they initially borrowed, according to Barrows and Forrester.
It said this figure would climb to £683,855 when considering the total cost of the loan and when factoring in the 25 per cent deposit. This would place the cost of home ownership at £754,145 – almost three times the original value of the property.
James Forrester, managing director of Barrows and Forrester, said: “Their [government’s] failure to build more homes while consistently introducing schemes to boost buyer demand has caused house prices to climb to record highs.
“Now they’re 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’t contend with the high price of buying in today’s 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.”
