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If you are covering the decision to allow Help to Buy homeowners to extend their mortgage term beyond 25 years, please see the following commentary from Gemma Harle, managing director of the Quilter Financial Planning mortgage network:
“The mortgage market has been transformed over the last decade or so with 35 year terms becoming the norm where they were once thought of as a rarity. These loans allow people to spread the cost over a longer period of time, reducing the monthly repayments and thereby making the cost of borrowing more affordable in the short term. However, over the lifetime of the mortgage a 35 year loan will end up costing a lot more than a shorter term product. On a fairly typical mortgage, the lifetime cost of a 35 year term can easily be tens or even hundreds of thousands of pounds more expensive.
“Help to Buy properties are already set-up to allow people to get a foot on the ladder without the need for a normal size deposit, but in a home which they perhaps couldn’t otherwise afford. Extending the mortgage term in turn allows people to spread the borrowing to make the cost of servicing the mortgage more affordable in the short-term.
“It is really important that this doesn’t create a false perception that this is the ‘normal’ way of owning a home and that those people using the Help to Buy scheme understand the ownership structure and future cost of purchasing the remaining equity, as well as the long-term financial cost of extending their mortgage term. Over-paying on your mortgage can be one of the most effective financial planning strategies, helping to reduce your borrowing costs over the long-term, but extending your mortgage term to 35 years is the complete opposite. It is really important for people to make informed decisions and meet the costs of home-ownership with their eyes wide open.
“As well as being most people’s biggest asset, the cost of buying a home also impacts on our other financial plans and savings prospects. Data from the FCA shows that around 40% of new loans will not mature until after the borrow turns age 65. That has a potential knock-on effect on retirement plans. Many people hope to be able to pay off their mortgage debts well before then, freeing them up to re-direct some more disposable income toward their pensions and other savings.
“This is not to say that all 35 year deals are bad news. For some people spreading the cost of the mortgage will be appropriate but it is absolutely crucial they obtain financial advice on the loan to ensure they’re making that decision on a fully informed basis.”
Quilter plc is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.
Quilter plc oversees £109.8 billion in customer investments (as at 30 September 2019, excluding Heritage life assurance).
It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset investment solutions; and discretionary fund management.
The business is comprised of two segments: Advice and Wealth Management and Wealth Platforms.
Advice and Wealth Management encompasses the financial advice business, Quilter Financial Planning; the discretionary fund management business, Quilter Cheviot; and Quilter Investors, the Multi-asset investment solutions business.
Wealth Platforms includes Old Mutual Wealth UK platform and Old Mutual International, including AAM Advisory in Singapore.
The Old Mutual Wealth Heritage life assurance business was acquired by ReAssure Group Plc on 2 January 2020.
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