It has been described as a “game changer” in terms of helping people currently priced out of the housing market to get a foot on the property ladder.
A 50-year mortgage would allow someone to borrow for a longer term, which would mean lower monthly repayments, which, in turn, could make housing more affordable.
But does such an approach have any real merit?
US president Donald Trump certainly thinks so. He recently floated the idea, which has received support from Federal Housing Finance Agency director Bill Pulte, who called the proposal “a complete game changer”. The agency has oversight of Fannie Mae, Freddie Mac and federal home loan banks.
READ MORE
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?
For Joey Sheahan, head of credit at MyMortgages.ie and author of The Mortgage Coach, the most effective solution to our housing crisis will be “the ready availability of housing stock”. However, as this looks some time away, he says that in the interim “it does make sense to explore all reasonable options to get people on to the property ladder in a sustainable and affordable way”.
So how could it work?
A 50-year mortgage
The longer you repay the loan, the smaller the monthly repayments and the more affordable purchasing property might be.
“Borrowing 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,” 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.
Consider a €500,000 mortgage. Over a typical 30-year mortgage, with a 3.5 per cent interest rate, monthly repayments would be €2,245 a month, with the total cost of funds (above the original sum borrowed) of €308,280.
Over 40 years, monthly repayments, based on an interest rate of 3.5 per cent, would be €1,936.95, while the total cost of interest would be €429,738.
Contrast this with a 50-year mortgage – repayments would fall back to €1,766, and the total cost of interest would be €559,600.
So then, you could be paying as much as about €480 a month less on repayments – 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.
Greater costs
On the other hand, it will also mean the cost of the loan will increase substantially over the lifetime of the borrowing.
Your €500,000 home bought today then, will have actually cost you about €1.06 million by the time you pay it off 50 years later. And of course interest rates can fluctuate over the period of the loan.
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 €808,280, or almost €251,000 less.
Now, just because you sign up for a 50-year mortgage doesn’t mean you would have to stick with it – as with other mortgages, you could bring the term down by increasing your monthly repayments.
And such a mortgage may actually also end up cheaper than renting for the long term – consider rent of €2,000 a month. Over 50 years, this would come to €1.2 million – more than buying a home, and without an asset you own at the end of the period.
The risks
Although such a proposal could make a €500,000 home more affordable to a broader cohort – given, as outlined above, that repayments would be almost €500 cheaper a month – it does come with other potential risks.
Negative equity is one, as it’s 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’t succeeded in paying down much of their loan, might find themselves “trapped”, as they won’t be able to sell the home without making a loss.
And without the safety of equity, Sheahan points out that there may also be reduced opportunities for homeowners to release equity in their home, “which may limit trade-ups, home renovations or upgrades, or mortgage top-ups for that purpose”.
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.
Another possible issue is if the number of buyers increases, due to increased affordability, then property prices may also increase.
“Unless we have supply of houses to meet the demand, then the whole exercise will risk simply fuelling house price increases,” says Sheahan.
Mortgage in your 90s
Such a long mortgage would also take a bit of a shift in terms of the typical age of buying a home – and how long it lasts for.
“People could well be paying their mortgage into retirement and it could risk becoming an intergenerational debt,” says Sheahan.
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.
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?
But it’s not so far from what we’ve had in the past.
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 were on 40-year terms in 2008. However, many buyers quickly ran into negative equity as prices plummeted.
These days, most lenders have rowed back on such terms, although Nua Money now offers a mortgage term of up to 40 years.
Mortgage in retirement
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’re older, given greater life expectancies and likelihood of still being in the workforce.
Already, some lenders are doing this.
MoCo, the Irish unit of Austrian bank Bawag, 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 “ability to service the mortgage beyond that point”. So, you will likely either need to be still working, or have a decent pension.
ICS Mortgages 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.
AIB has started inching up its maximum age. It will still lend for a maximum term of 35 years up to your 69th birthday – but will now go up to your 71st if you’re still working or are self-employed.
A spokesman for Bank of Ireland says it will consider applications beyond a customer’s retirement age – which can be past 70 – “where they can evidence ongoing affordability”. It will also lend up to 35 years.
PTSB says you need to be aged 70 or less by the term your mortgage ends.
