This month we ask: Should banks offer 40-year mortgages to help first home buyers?
Limit it to those with strong credit
"A 40-year mortgage can deﬁ nitely help people get onto the property ladder; however it should be limited to ﬁ rst home buyers (FHBs) with strong credit positions and also with a cap on the maximum loan amount. Aff ordability is an issue especially in Sydney and Melbourne and this product is going to at least ease the issue a bit more. However, I would think improving income is the best way to catch the aff ordability issue. Why not a lower assessment rate for FHBs instead of longer-term loans?"
Ren Wong, N1 Finance
Not the only option available
"I don’t believe there will be a lessening in standards or a diff erent servicing calculator for such loans. A 40-year loan term as a cash ﬂ ow management tool is great, but it has to be clearly explained to borrowers that this will increase the cost of repayments over the extra 10 years. Lower servicing hurdles, reducing stamp duty costs and lowering LVRs without higher assessment hurdles would be a few other ways to assist those [buyers] onto the property ladder."
Jane Slack-Smith, Investors Choice Mortgages
Take a holistic approach
"I would hope this was coupled with a restriction to the borrowing capacity for consumers, possibly by ensuring that maximum borrowing capacity should still be calculated on a 30-year loan term. If there was an exception, it should only be for FHBs, especially those who have been renting for a long period and who are unable to entertain the thought of home ownership. I would love to see this coupled with a solution for the deposit required, which I believe is a serious issue."
Joel Wyld, Peasy
Consider anticipated retirement age
"It would have to be age related, because you wouldn’t want somebody of the age of 40 buying their ﬁ rst home. It would have to be on a case by case basis and they’d have to show they could pay the loan back within their working years. They’ve got to look at when they’re going to retire, but also the bank’s policies on their retirement age. Some people work until they’re 60, some until they’re 55, some until 70, depending on what their work is."
Sharryn Huggett, Huggett Enterprises
Interest could cost more over time
"A limited number of lenders currently off er 40-year loan terms. While it will off er lower monthly repayments for a borrower compared with the traditional 30 years, a signiﬁ cant disadvantage is the additional interest payable over 40 years compared with 30. If a borrower wants to enter the market who can only do so with a 40-year term, there is some merit in off ering that product, as long as they are clear about the full terms, conditions and reality of what they are entering into."
Peter Reynolds, Mortgage Choice
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