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Forget 50 year mortgages - invest in private renting to help young people

A leading figure in the property industry has slammed the government’s proposals to encourage more lenders to offer 50 year mortgages to help people get on to the housing ladder.

Instead, David Alexander of the Lomond Group wants more investment in the private rented sector, more emphasis on social housing and easier planning laws to provide a combination of solutions to the current housing shortage.

[There is a poll at the bottom of this story where you can have your say on what might help ease the housing crisis].

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Alexander is chief executive of DJ Alexander Ltd, the largest lettings and estate agency in Scotland and part of the Lomond Group.

He says Boris Johnson’s support for increasing mortgage terms to 50 years may appear a help to first time buyers it has the potential to simply delay a downturn in the market. Rather than resolving issues for borrowers it may simply be exacerbating problems.

Such a policy, if fully implemented, has the very real potential to encourage a short-term boom in the housing market followed by a long-term bust, he warns.

He says: “With people stuck on 50-year mortgages they are unlikely to be able to afford to move as it will take decades for equity to accrue, debt will remain very high for years resulting in the bulk of repayments being made against interest, and there will be little opportunity or ability to move home despite the likelihood of changed circumstances.

“While it may suit a young couple who borrow on this basis in their twenties this could become a burden when they start a family and need to borrow more to buy a larger home After a decade, they will have paid off very little and any accrual in value will be matched in the property market they live in limiting their options to change home.”

He adds: “What the housing market does not need are longer mortgages, less stringent affordability criteria, or higher borrowing multiples. If the government really wants to stabilise or reduce prices, then they need to increase supply. Demand has been outstripping supply for years in both social housing and the private sector and unless this is resolved there will continue to be housing shortages and rising prices.”

And Alexander concludes: “The solution to the problem is to encourage more homebuilding through an easing of the planning system; seriously increase the volume of social house being built; and encouraging investment in the private rented sector to continue to meet the demands of people not currently buying and not eligible for social housing. A 50-year mortgage is simply temporarily sustaining the market and passing debt on to the next generation which does nothing to resolve the long-term underlying issues in the housing sector.”

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Poll: What single factor would help ease the housing crisis the most?

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    Just because a mortgage starts off as a 50 year term doesn't mean it will remain in place for 50 years.
    Circumstances and earnings change throughout life so as long as overpayments can be made without penalty it doesn't really matter what the initial term is.
    If a 50 year term means someone can buy a 3 bedroom house instead of a 2 bedroom flat they will have saved thousands in selling and buying costs.
    Usually when someone sells a house and buys another one they take out another 25 year mortgage so in reality very few people only have a mortgage for 25 years.
    Having a mortgage into retire can be a useful way to minimise IHT.
    20 years ago interest only mortgages were very common and allowed vast numbers of people to buy family size houses and bypass a couple of rungs on the ladder.

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    I thought the same, Jo.

    Most mortgage lenders will let you overpay up to 10% of the total amount owed in any one calendar year without charge. However, If you pay your mortgage off in full you may be charged an early mortgage redemption fee to compensate the lender for the loss of interest. I don't think it would be a proposition that I would be particularly keen on unless the terms were flexible.

     
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    Excellent logic from Jo and Ellie.

    I am still in only the second home we ever bought some 45 years ago which back then was far too big and expensive – and we really couldn’t afford it for a long time after buying it - but having scrimped and saved for the first 5 years of marriage, we just continued to do so and weathered the 15% interest rates of the Major-Lamont years, removal of mortgage tax relief etc.

    We’ve also saved a fortune in stamp duty, estate agent and legal fees by not moving house during all that time. Our next move will be either to an overpriced McCarthy and Stone flat, into care or bypass both and straight into a wooden box.

    Moving to an interest only mortgage, which in theory has an infinite period, saved our bacon then and while we’ve since paid this mortgage off, we’ve still got around £1 million of interest only mortgage debt on a £4 million portfolio. This costs around £20,000 pa in interest but generates an additional £60,000 in gross rental income and will save my heirs £400,000 in IHT when I eventually pop my clogs, which will probably equate to the gross interest costs payable over my lifetime, making this £1 million of debt actually interest free!

    Long term and interest only (infinite) mortgages have their place – as does equity release (with a reputable company) – but these are not for the unwary or those who won’t plan ahead and take responsibility for their own futures.

    However the most important factor is to balance the housing market by encouraging landlords to stay invested in the market and by building sufficient homes to meet demand and ensure developers can’t make unwarranted levels of profit through too many buyers chasing too few new houses – as happened with the help to buy schemes.

     
  • George Dawes

    By the time it’s up we’ll have entered the brave new world of ze great reset and you’ll be paying off a mortgage for a property you don’t even own

    Now that’s what I call debt slavery

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    Building more houses doesn't help if they are the wrong houses in the wrong locations. Simply building more 3 and 4 bed semis further and further from amenities is crazy.
    We have an aging population and need far more variety of retirement housing. Someone needs to properly assess what older people want at various stages of life. People often have decades between children leaving home and needing a care option. Providing suitable retirement housing incentivises older people to move out of the well located family size houses they currently occupy. How many people only stay in their current house because they can't find a more suitable alternative? Downsizing is much harder than upsizing.
    At the other end of the spectrum should we really be incentivising young people to have babies just to have a 2 bedroom housing entitlement? Would a kind of co-living arrangement of purpose built flats in managed blocks complete with a creche and education facilities be an idea worth exploring? Self contained flats with communal lounge, playroom, etc. If a teenager knew getting pregnant meant living in a supervised building with rules and an expectation of getting a job or attending classes how many would see that as an attractive option? It would be far better for the babies though.
    Does the bedroom entitlement in rental properties cause problems? Just because a child reaches 16 they are entitled to their own bedroom. Should that require the while family to move into a bigger house for what may only be a couple of years or would providing managed co-living accommodation for 16 year olds be a better solution? As someone who left home at 16 for my own safety and finished up in a very grotty bedsit with an older predator I know the teenage issue comes in many different permutations.

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    Just think of all that compound interest they'll pay over that term, it'll be just like renting only there won't be a landlord there to pay for repairs.

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    Just think of all the equity they will potentially gain over those years, so not quite like renting.

    Didn't houses cost about £10000 50 years ago? I know I looked at a 3 bed terrace in 1982 that was priced at £18000. Today it would be around £325000.

     
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    Andrew

    I agree with Jo on this one.

    Inflation tends to cancel out interest costs over time, which is why leaving cash in the bank is a mug's game!

     
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    Don’t agree I wouldn’t sign up to a 50 year Mortgage, the half of this is too much. I would rather never to own anything.
    Circumstances can change and will but very often in other direction when work situation goes bad or family comes along. Its like to me Mortgage Companies taking over the letting business, just keep them in debt forever and nailed down.
    Regarding the 4 option Survey the answer is none of those, so can’t vote just stop interfering.

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    Michael

    I don't agree. I've used the money (sometimes cheap like the last 10 years, sometimes expensive like 15% base rates) others were too scared to invest themselves to build up my portfolio.

    Without borrowing £60,000 for my first £66,000 buy to let flat over 30 years ago, I would still only have £6000 in savings! I sacrificed well over 10,000 pints of beer to save that £6000 and now it would only buy about 1000 pints, whereas my £3 million of equity would buy over half a million pints - 500 times as much!

    Cheers!

     
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    Jo, you said a mouthful there in that memorandum of too many views for a single comment but fair play you are on fire today.
    So I agree and disagree with many parts of your novel, for instance I don’t agree with pushing older generation out of their homes, changing their surroundings and life style putting them into a retirement flat against their wishes would probably kill them off anyway.
    I don’t agree with communal living spaces or lounge’s people prefer their privacy.
    Building Social housing is a waste of time the list will be endless as now more keeps joining to avail of the goodies. Girls leaving School get babies as quick as possible, get housed and on the System, sorted.
    Single Parent Families rampant the order of the day leading to an unstable broken Society directly caused by the Benefit system. See the way Marriages have decreased and families split up because the benefit is a better option than a husband. l seen first hand a lady who had a child on the Benefit in 2 bed Flat for all the years until 18th birthday was coming then was told she would loose the Flat, so she gets pregnant again, sorted. For most part it was £1200. pm + her money + child allowance + School at all t rest of it, that’s hundreds of thousands and expect the tax payers to cover all this and I am only talking about one person.

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    I totally agree Michael, I had a single mum tenant, when her daughter went to school she was expected to look for work, she disappeared off to Spain where her Mother lived, on clearing out the house I found letters threating to stop her benefits because she hadn't been turning up for job interviews, a year later she returned from Spain well pregnant , this is how they work the system, I now have a blanket ban on single mums in my properties

     
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    I don't agree with pushing older people out of homes that they love, can afford and can manage. Simple fact is a lot don't want or need the space any more and would love to find somewhere more manageable but still close to their friends and neighbours. They still want an en-suite, a utility room, parking, a spare room, rooms big enough for full size furniture and a lifetime's worth of treasures. So not FTB properties. They don't necessarily want multiple spare bedrooms and a big garden or to be located miles away from a supermarket or doctor.

    I don't agree with communal space as the only option but for the groups I suggested it for the opportunity to interact with other people is important. Somewhere with similar facilities to the modern student halls. Shutting yourself away in a room or small self contained flat and only interacting online can be very isolating and damaging to mental health, especially for young people with limited life skills.

    You're completely right about the single parent thing which is why I suggested removing the standard stand alone 2 bed housing entitlement. A 2 bed flat in a managed block with an expectation of work and education would be a disincentive for a fairly high percentage of the more problematic families and would potentially save the lives of a few babies and toddlers every year.

     
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    Michael - I have personal experience of an elderly friend moving to a flat from a large house with a garden and finding the adjustment very difficult - became shaky and anxious. Then broke her hip. She's still alive, but changed from being capable and self-reliant to frail. Difficult to move from somewhere that you are familiar with. Her cat was devastated by the move, too.

     
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    The truth won’t be popular the huge numbers involved.

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    I heard a bank offering 50 year mortgages with fixed rate interest.

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    This article makes sense, certainly better than the usual left wing nonsense from Gen Rent and crew, there has to be millions of truly affordable houses built, where I do not know as the usual nimbies will try and stop them, especially if they are social housing. We are becoming a very divided nation and history shows us that does not end well. Large swathe’s of RedRow/Persimmon and others, building the standard 4 bed detached with matching postage stamp gardens will not help with those who need a flat, 2 bed town house or 3 bed semi….. it’s all about the profit, and as a society we have lost our way.

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    It amazes me that anyone buys those cardboard houses RedRow/ Persimmon build

     
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    Andrew - they buy them because of things like the Help to Buy scheme or because developers offer part exchange so they don't have to worry about a chain collapsing.

     
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