Jul 6, 2022 - Economy

Housing affordability crisis sparks talk of 50-year mortgages in the U.K.

Illustration of a flip calendar shaped like a house hanging on a wall.

Illustration: Aïda Amer/Axios

In the United Kingdom there's talk of lengthening the loan terms on mortgages to 40 or 50 years, as a way of making homes more affordable.

The big picture: In the U.S. — which has an affordability problem of its own — no one is talking about this. We already took this kind of step back in the New Deal, in establishing 30-year mortgages — vastly expanding access to homeownership (among white Americans).

  • Before the government took these steps to back mortgages, terms on home loans were around five years, notes an overview from Marketplace from 2018.
  • The 30-year loan became even more appealing after Fannie and Freddie were established in the 1970s, and started buying mortgages from banks that no longer had to hold on to that risk for decades.

State of play: Forget 50 years, the U.K. doesn't even do 30-year fixed mortgages. Rates are typically fixed for only two or five years and then float (meaning payments will go up as rates rise) — for terms as long as 25 years.

  • There's no Fannie or Freddie out there supporting the market, though there's increasing talk of moving in that direction, as Bloomberg reported. The 50-year loan is part of the conversation.
  • The notion of such a long loan term is not unheard of — Japan started doing 100-year mortgages decades ago, it's a way for parents to pass on wealth without burdening the next generation with higher inheritance taxes.

Zoom in: There are more practical reasons that a half-century mortgage wouldn't be the best way to expand affordability in the U.S. or anywhere else, really...

  • Borrowers would pay more. The advantage to a longer loan term is lower monthly payments, but ultimately you'd pay more in interest.
  • They'd also build less equity: If you have a 50-year loan on a $400,000 house you'd have $110,000 of equity after 30 years, according to calculations by the Mortgage Bankers Association. If you had a 30-year loan, you'd own the house.
  • Plus, typically when home payments go down, it allows prices to rise.

Yes, but: Most people don't actually pay off their mortgages. The median length of time someone stays in their home in the U.S. is 13 years, according to the National Association of Realtors. So, from the perspective of a short-term homeowner, a 50-year term might make sense.

The bottom line: Better than messing with mortgages, most housing observers here (and in the U.K.) believe actually building more homes would be a better way to increase affordability.

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