It has been described as a \u201cgame changer\u201d in terms of helping people currently priced out of the housing market to get a foot on the property ladder.<\/p>\n
A 50-year mortgage<\/a> would allow someone to borrow for a longer term, which would mean lower monthly repayments, which, in turn, could make housing more affordable.<\/p>\n But does such an approach have any real merit?<\/p>\n US president Donald Trump<\/a> certainly thinks so. He recently floated the idea, which has received support from Federal Housing Finance Agency director Bill Pulte, who called the proposal \u201ca complete game changer\u201d. The agency has oversight of Fannie Mae, Freddie Mac and federal home loan banks.<\/p>\n But is it just another soundbite from the US president or does the proposal have some potential? And is it something that could work in Ireland?<\/p>\n For Joey Sheahan, head of credit at MyMortgages.ie and author of The Mortgage Coach, the most effective solution to our housing crisis<\/a> will be \u201cthe ready availability of housing stock\u201d. However, as this looks some time away, he says that in the interim \u201cit does make sense to explore all reasonable options to get people on to the property ladder in a sustainable and affordable way\u201d.<\/p>\n So how could it work?<\/p>\n A 50-year mortgage<\/p>\n The longer you repay the loan, the smaller the monthly repayments and the more affordable purchasing property might be.<\/p>\n \u201cBorrowing a mortgage amount across a longer period boosts the affordability, as the monthly amounts repayable when spread across a 50-year period will be less and therefore more manageable than the amounts repayable across the more typical mortgage duration of 30 or 35 years,\u201d says Sheahan, adding that other benefits include buyers being able to purchase a home at a younger age, as well as offering someone increased stability over the uncertainty of renting for a long period.<\/p>\n Consider a \u20ac500,000 mortgage. Over a typical 30-year mortgage, with a 3.5 per cent interest rate, monthly repayments would be \u20ac2,245 a month, with the total cost of funds (above the original sum borrowed) of \u20ac308,280.<\/p>\n Over 40 years, monthly repayments, based on an interest rate of 3.5 per cent, would be \u20ac1,936.95, while the total cost of interest would be \u20ac429,738.<\/p>\n [\u00a0Irish property market is rigged in favour of those who get parental gifts of up to \u20ac100,000Opens in new window<\/a>\u00a0]<\/p>\n Contrast this with a 50-year mortgage \u2013 repayments would fall back to \u20ac1,766, and the total cost of interest would be \u20ac559,600. <\/p>\n So then, you could be paying as much as about \u20ac480 a month less on repayments \u2013 which means that the bank may be willing to lend you more than they otherwise would, and thus makes a property that you might otherwise have been unable to buy, affordable.<\/p>\n Greater costs<\/p>\n On the other hand, it will also mean the cost of the loan will increase substantially over the lifetime of the borrowing.<\/p>\n Your \u20ac500,000 home bought today then, will have actually cost you about \u20ac1.06 million by the time you pay it off 50 years later. And of course interest rates can fluctuate over the period of the loan. <\/p>\n If you had managed to keep the term to 30 years, the total cost of the home (purchase price plus mortgage costs) would have only been \u20ac808,280, or almost \u20ac251,000 less. <\/p>\n Now, just because you sign up for a 50-year mortgage doesn\u2019t mean you would have to stick with it \u2013 as with other mortgages, you could bring the term down by increasing your monthly repayments.<\/p>\n And such a mortgage may actually also end up cheaper than renting for the long term \u2013 consider rent of \u20ac2,000 a month. Over 50 years, this would come to \u20ac1.2 million \u2013 more than buying a home, and without an asset you own at the end of the period. <\/p>\n The risks<\/p>\n Although such a proposal could make a \u20ac500,000 home more affordable to a broader cohort \u2013 given, as outlined above, that repayments would be almost \u20ac500 cheaper a month \u2013 it does come with other potential risks. <\/p>\n Negative equity is one, as it\u2019s going to take longer to build up equity in the property, and home buyers would likely to be paying interest only for the first 10 years of the term. This means that if property values fall, a homeowner who hasn\u2019t succeeded in paying down much of their loan, might find themselves \u201ctrapped\u201d, as they won\u2019t be able to sell the home without making a loss. <\/p>\n And without the safety of equity, Sheahan points out that there may also be reduced opportunities for homeowners to release equity in their home, \u201cwhich may limit trade-ups, home renovations or upgrades, or mortgage top-ups for that purpose\u201d.<\/p>\n Given the longer repayment date, it could also mean a higher interest rate will be needed, as there is a greater chance of default as the loan extends for so much longer, so lenders might charge more.<\/p>\n Another possible issue is if the number of buyers increases, due to increased affordability, then property prices may also increase.<\/p>\n \u201cUnless we have supply of houses to meet the demand, then the whole exercise will risk simply fuelling house price increases,\u201d says Sheahan.<\/p>\n Mortgage in your 90s<\/p>\n Such a long mortgage would also take a bit of a shift in terms of the typical age of buying a home \u2013 and how long it lasts for.<\/p>\n \u201cPeople could well be paying their mortgage into retirement and it could risk becoming an intergenerational debt,\u201d says Sheahan.<\/p>\n Latest figures from the Central Bank of Ireland show the average age of a first-time buyer is now 36, and a trader-up 43.<\/p>\n If a 50-year mortgage was to really work, then, it would require buyers to get buying at a younger age. After all, what lender would really want to stay on the hook for a mortgage to a nonagenarian?<\/p>\n But it\u2019s not so far from what we\u2019ve had in the past. <\/p>\n [\u00a0\u2018It\u2019s completely unfair\u2019: How a broken rung on the property ladder locks out first-time buyersOpens in new window<\/a>\u00a0]<\/p>\n Back in the run-up to the Celtic Tiger (no great endorsement to be sure), 40-year mortgages were available, with First Active, Bank of Scotland and Ulster Bank offering them at the time. Indeed, about one in five first-time buyers<\/a> were on 40-year terms in 2008. However, many buyers quickly ran into negative equity as prices plummeted.<\/p>\n These days, most lenders have rowed back on such terms, although Nua Money<\/a> now offers a mortgage term of up to 40 years.<\/p>\n Mortgage in retirement<\/p>\n If a 50-year term is seen as unlikely then, what might be more realistic is offering home buyers the opportunity to borrow until they\u2019re older, given greater life expectancies and likelihood of still being in the workforce. <\/p>\n Already, some lenders are doing this.<\/p>\n MoCo, the Irish unit of Austrian bank Bawag<\/a>, caused a bit of a stir when it entered the Irish market in 2023 promising 35-year loans up to the age of 80. However, such grace is not given to all; the lender says it will assess your \u201cability to service the mortgage beyond that point\u201d. So, you will likely either need to be still working, or have a decent pension.<\/p>\n ICS Mortgages<\/a> also now offers a 35-year term, up to the age of 80, while Nua Money will lend over 40 years, up to the age of 75.<\/p>\n AIB<\/a> has started inching up its maximum age. It will still lend for a maximum term of 35 years up to your 69th birthday \u2013 but will now go up to your 71st if you\u2019re still working or are self-employed.<\/p>\n