RESIDENTIAL Opinion
Long-term loans: Advice value has never been greater
R
ecent research from UK Finance revealed that the proportion of loans with terms up to 40-years is much higher now than it was just a few years ago, particularly among first-time buyers (FTBs). This mirrors what we are seeing throughout the Rosemount network, with more clients seeking to extend terms to keep monthly payments affordable. It’s completely understandable that existing and aspiring homeowners are going down this route – for some, it currently represents their only hope of ge ing a mortgage, or of refixing on a new deal at a rate they can afford. That being said, while ultralong mortgages might improve affordability in the short-term, it’s more expensive over the long-term and could have other ramifications for the future financial security of homeowners. Advisers therefore have a key role to play in making sure any clients considering extended mortgage terms fully understand all the potential disadvantages, as well as the advantages. UK Finance figures show the proportion of new mortgages taken out with a 36 to 40-year term has been rising sharply across first-time buyers, movers and those remortgaging since the end of December 2022. The most notable increase was among first-time buyers. By the end of 2023, almost a fi h of those trying to get on the ladder were borrowing with terms over 35-years, compared with fewer than 10% a year earlier. As well as the struggles for firsttime buyers, we’re seeing homeowners coming off product rates of maybe 1% or 2%, facing new rates of 4% or
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The Intermediary | July 2024
5%, and potentially doubling their mortgage payments. Wages have generally not followed that same rate of increase, and other bills have gone up. Some people therefore feel they have no other option than to select a longer term to keep the monthly repayments affordable. It falls to advisers to make sure clients understand this will result in them paying more over the longer term and could see them taking the mortgage into retirement with them. There may be other lifestyle changes they can consider instead; the key is making sure they have all the information they need to make an informed choice.
Subsequent mortgage transactions It’s likely that most people going into a 40-year mortgage will do so with the intention of reducing that during future transactions, when rates have hopefully come down or other financial pressures have eased. However, this is not a given, and more people are needing to do this in subsequent mortgages. Finding products for people who have already stretched a mortgage term in the past creates a further challenge. To take a mortgage over the age of 70, many lenders will want to see evidence of expected retirement income – which can be an issue for those who do not currently pay into a pension. Some lenders will look at employed income alone beyond the age of 70, but will then assess the likelihood of the individual being able to work until that age, depending on their job role and so on. We know this trend of borrowing over longer terms is playing out through the homeowner journey, because more people are taking
AHMED BAWA is CEO at Rosemount Financial Solutions (IFA) Ltd
Using a longer mortgage term to manage current finances is an expensive short-term strategy. Where it’s the only option, it’s important for advisers to talk to their clients” mortgages into retirement. While it’s therefore not as uncommon as it once was, it could prompt the need for some form of later life lending. As affordability challenges continue to bite, we’re seeing the market react through the products and options available. Securing a mortgage isn’t as straightforward as it once was, and advice from knowledgeable mortgage brokers and financial planners is vital to ensuring that people choose the best possible route available to them. Using a longer mortgage term to manage current finances is an expensive short-term strategy. Where it’s the only option, it’s important for advisers to talk to their clients about their future financial planning and potential exit strategies. At Rosemount, our advisers can easily access a full holistic financial planning solution for their clients, using our centrally managed referral system, to help them achieve financial security now and for the future. ●