Government’s 50-year mortgage proposal – What you need to know

The Government has proposed the idea of a 50-year mortgage. Aimed at tackling the housing crisis, the new arrangement would effectively create inter-generational loans.

So far, the idea has received a cautious welcome, but some property professionals have highlighted potential pitfalls.

The concept comes as figures show that people in full-time work in England need to spend an average of 9.1 times their annual earnings to purchase a home.

Potential mortgage providers say the move would allow borrowers to borrow eight times their incomes, rather than the current average of 3.2 times their current wage.

The extended mortgage period would allow people to borrow larger sums, with the possibility of passing the debt on.

How would it work?

It is likely that 50-year mortgages are never paid off over the full term and are typically only used as a cash-flow tool
The longer loan would mean lower monthly payments, but having to pay more in interest, while the equity build-up is slower
There are fears of saddling younger relatives with debt, but the property could be sold at a profit to pay off the mortgage.
A complication could be that when a property or mortgage is passed on to children, Inheritance Tax could be liable.

The idea is not new with multi-decade mortgages pioneered in Japan where 100-year family mortgages are offered.

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