Longer loan terms could spread a little happiness

We’ve already heard that the retirement age may rise to 68, but how will this impact on the standard term for a residential mortgage? As more companies scrap their final salary pension schemes, more of us will need to work longer, in order to build up a large enough retirement fund.

The mortgage industry has been slow to catch up. Some lenders require borrowers to pay off the sum by the time they reach 65, even for those who employers allow them to work beyond that age.

According to Ray Boulger, of mortgage brokers John Charcol, such arbitrary limits are untenable. If the retirement age does rise, then lenders’ policies will have to change, especially if borrowers are able to support the loan from their pension or other income, he says.”The challenge for lenders is making sure that the mortgage is affordable. In many cases, the buyer’s pension income will be more than able to meet the repayments.”

The price rises of the last few years could also affect average mortgage terms. Someone who wants to move at the age of 50 might not be able to afford the higher repayments for a 15-year term - necessary if they wanted the loan repaid in full by the standard retirement age.

Also, younger buyers might want a term of 30, 40 or 50 years, to bring down the cost of the monthly repayments. During Japan’s housing boom, for example, buyers could take out a mortgage for 100 years. The downside is that the total bill for the mortgage interest is much higher.