Sunday 8 December 2019

More debt slaves will be created by latest 35-year home loans

Analysis

Charlie Weston

Charlie Weston

WE have had six years of bitter financial experiences in this country, but after it all we seem to have learned little.

That can be the only conclusion after it emerged that 35-year mortgages are back in vogue. These types of mortgages are partly responsible for the arrears mess we have yet to clean up.

Just like ultra-cheap tracker mortgages, and 100pc loans, super-term mortgages interfere with the proper running of the mortgage market.

These types of bank incentives have been responsible for leaving up to 200,000 mortgage holders now effectively debt slaves saddled with borrowings they cannot repay.

A 35-year mortgage makes a property more affordable, and so these loans are helping to inflate prices in urban areas.

If someone cannot afford a mortgage without the likes of a 35-year mortgage, or some other whizz, then they cannot afford the mortgage.

The attraction of a 35-year mortgage comes from the fact that the loan is stretched out over a longer period. This means lower monthly repayments.

Super-term mortgages mean people can borrow more and this is acting to push up property prices.

But in the long-term the borrowers pay. The interest is charged over a longer period, so it stacks up and the banks end up as the winners.

Super-mortgages have always been available and were available for up to 40 years during the property boom.

However, few of these super-term mortgages have been issued in the last six years.

There was little property lending, and what mortgages were issued were on restrictive terms.

Now 35-year mortgages have re-emerged as a popular option for first-time buyers.

With property prices more affordable we have a chance to get rid of these types of home loans.

If we do not, we are just creating a whole new generation of home buyers who will be debt slaves to their banks for decades.

Irish Independent

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