BOE Warns Popular 35-Year Mortgages Shackle Consumers With "Lifetime Of Debt"

Tyler Durden's picture

Consumers in the UK have been on a credit binge since the Bank of England cut its benchmark interest rate to an all-time low as investors braced for the widely anticipated economic shock of Brexit – a shock that, unsurprisingly, has yet to arrive, despite warnings from the academic establishment that a "leave" vote would trigger an imminent economic catastrophe. And now, with total credit growth rising at 10% a year, the BOE is warning that the increase in unsecured lending is becoming increasingly unsustainable.

While the central bank is less concerned with mortgage debt than credit-card debt and other types of consumer credit, some at the bank are beginning to worry that the growing demand for long-term mortgages will shackle borrowers with a lifetime of debt, according to the Telegraph.

British families are signing up for a lifetime of debt with almost one in seven borrowers now taking out mortgages of 35 years or more, official figures show.

 

Rapid house price growth has ­encouraged borrowers to sign longer mortgage deals as a way of reducing monthly payments and easing affordability pressures.

 

Bank of England data shows 15.75pc of all new mortgages taken out in the first quarter of 2017 were for terms of 35 years or more. While this is slightly down from the record high of 16.36pc at the end of 2016, it has climbed from just 2.7pc when records began in 2005.”

The steady rise has triggered alarm bells at the BOE, prompting regulators to warn that the trend risks storing up “problem[s] for the future” if lenders ignore the growing share of households prepared to borrow into retirement. Indeed, bank figures show one in five mortgages today are between 30 and 35 years, up from below 8% in 2005, as the traditional 25-year mortgage becomes less popular.

There’s also the unaffordability question. That borrowers are opting for longer mortgage terms means they’re finding rent and mortgages are growing increasingly unaffordable, a worrying sign as credit expands.

David Hollingworth, a director at mortgage broker London & Country, said the trend showed that an increasing share of borrowers were “struggling with affordability pressures, and deciding that lengthening the term will offer leeway” as house price growth continues to outpace pay rises.

Sam Woods, the chief executive of the Prudential Regulation Authority, has said policymakers are watching developments closely.

“If lenders become too narrowly preoccupied with the profile of the loan in the first five years” and not look at the entire profile of the loan when assessing affordability “this could store up a problem for the future,” he said in a speech.

While interest rates are expected to stay low, the pound’s 15% drop against the dollar since the last year is driving up the price of consumer goods, adding to the pressure on borrowers. Prices of consumer staples are growing at an annualized rate of 3%, far more than interest rates on savings accounts.


 

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Glyndwr will return's picture

First role of government - protect the borders. Epic fail over the last 20 years

Other role 1 - to inform people of risks (health and safety - funny)

Other role 2 - to inform people of financial risks - epic fail again.

For misleading so many people over life changing decisions over the last 20 years and especially now, people like Mark Carney should rightfully be hauled before the courts and rightly locked up.

Our leaders ONLY fail. Ergo: They are not our leaders.

Other role 3 - give people free stuff until the money runs out and remove all personal responsibility in the meantime.

 

Eeyores Enigma's picture

Glyn - The paltry billions a YEAR of "free stuff" the 99% receive is pocket lint compared to the billions a DAY in free money the 1% get. But I am sure they are simply that much more worthy.

D Nyle's picture

Why waste time with 15/30/35 years loans, just go striaght to the "Debt Slave" loan for life with a few extra years added for the Kin

Call it the Indentured Servitude Ajustable Rate Theme (IS ART).

Great for Graduating Liberals

yogibear's picture

The mentally disordered libtards fight for becoming bankster slaves. Have to have that 3 year leased Audi, a 100 year mortgage home, that $150k student loan and that 3 year iPhone payment. Die in debt. Next step is for the banksters to pass laws to ensure your kids and grandkids owe your debt. So their born debt slaves.

Centerist's picture

One of the problems with discussing entitlements and subsidies for different groups is that the discussions usually end up devolving into accusations that one group gets an unfair share of the government's pie compared to another.  The arguments rarely cite any figures, though.

According to the Tax Foundation, the top 25% of earners paid 86.78% of all income taxes in 2014, the latest year with complete data.  Look at Row 6 of Table 1:

https://taxfoundation.org/summary-latest-federal-income-tax-data-2016-up...

I would hardly call the top earners collectively worse abusers of Federal largesse than the bottom earners or non-earners.  The Elon Musks of this world who get billions of dollars to keep failing companies afloat, the Chrapplers and Government Motors of the auto industry who get bailed out, and the banks who get to have toxic assets cleaned from their books at taxpayer expense are all examples of what shouldn't happen.  The top earners who get demonized are not all recipients of government money as certain others are in the listed examples, though.  They certainly do, however, pay for what the lower earners receive as subsidies or direct payments.

 With that being said, able-bodied adult individuals shouldn't get cradle-to-grave health, food and shelter subsidies.  That anyone, at all, should have lifetimes of bad choices rewarded with the fruits of other people's labors is abhorrent.  They are as worthy of derision as the corporate entities who get their own forms of welfare.  And this is what gets left out of entitlement discussions.

You can't justify free shit for one group by pointing out that some other group gets free shit, too.  Free shit is just redistribution at gunpoint and is wrong, regardless of who receives it.

This is the most honest way to frame the discussion.

PT's picture

Of course the rich pay more income tax.  By definition they have more income.  "the top 25% of earners paid 86.78% of all income taxes in 2014" and their proportion of income was???

The Free Shit Army gets "free" shit because they have no land, no Capital and no means to opt out.  The "free" shit is just there so they don't realize how fucked they are.  It keeps them quiet.  "Free"?  You should read the fine print one day.  It's not all free.  And of that which is, a lot of it is simply designed to make stuff more expensive to those who still work.

Centerist's picture

"Of course the rich pay more income tax.  By definition they have more income.  "the top 25% of earners paid 86.78% of all income taxes in 2014" and their proportion of income was???"

And what part of my post does that refute, exactly?

"The Free Shit Army gets "free" shit because they have no land, no Capital and no means to opt out.  The "free" shit is just there so they don't realize how fucked they are.  It keeps them quiet." 

So are you advocating for the status quo?  The status quo kind of blows.

"'Free'?  You should read the fine print one day.  It's not all free.  And of that which is, a lot of it is simply designed to make stuff more expensive to those who still work."

I never said otherwise.

Scooby Doo's picture

It is interesting that the Free Shit Army is always petitioning their Master (government) to give them more.  And, stunningly, they do not realize that they are indeed slaves. Free people use the opportunity to work.   Slaves beg. 

PT's picture

The role of the FSA is to scare the shit out of the hamsters so they make the wheel spin faster.  Notice it works.

beijing expat's picture

I think it's an aspect of NeoLiberalism that thinks the government does no good, so they have given up trying.

any_mouse's picture

First role only, with negotiating treaties with foreign powers. That is in the Constitution as the Duties of the USA Federal government.

#2 and #3 are nanny state BS.

First they inform, then they regulate.

And since the government is owned by the wealthy families the government lies about 2 & 3 to benefit the few.

Eeyores Enigma's picture

The other truth that is never spoken is in the end you will have to pay $4000,000.00 for that $200,000.00 home that should have sold for $100,000.00 in the first place if it were not for the money lenders.

Can't you just smell the freedom?

Sonny Brakes's picture

Plus, don't forget that a 35-year-old house will require maintenance. You'll usually need to replace the roof and the windows. You'll need to cut the grass and shovel the snow. You'll receive utility, insurance, and property tax bills forever.

Take a look at houses where you live. Try and find the houses that are older than 35 years old that haven't been maintained. Would you consider it an investment or a money pit? Houses are rarely standing after 100 years.

Another thing to consider. It's about condominiums. Who do you think will be picking up the tab once they've been abandoned and need to be torn down? Check your contract, man. Because you're living in [bleep] city.

rent slave's picture

Rent is a guaranteed money pit.

Sick Monkey's picture

Maybe 20 years ago but not anymore. RE as a secure investment is highly over rated unless you can pay that overpriced maintenance money pit in 10 years.

Even if you do manage to pay it off quickly there is no guarantee you will break even.

The original buyers market/sellers market pinned to a normal recessionary cycle has been distorted with easing and low corporate profits.

To get back to normal cycles at least half global debt now has to be written off.

The big picture is really ugly forcing all investors into a very diverse rapidly changing envoronment.

Safe havens are passe for all investors big and small. 

yogibear's picture

So are houses in high property-taxed areas. You will never own it. Just lease it from the county. A number of places have a $10,000/ year real estate tax on $2,000 SQ foot house.

Sonny Brakes's picture

You are correct. I'm not arguing against home ownership. My argument is that a person doesn't get to own a home as much as a home owns its owner. The media, where people who make their living in real estate spend their advertising dollars, have done a wonderful job of selling home ownership. So it's true that the dream of becoming a home owner is a valid one, but I recommend that people take a minute to reflect on how our economic models have changed over the years. Home ownership comes with a mortgage on your body and a lien on your soul.

Scooby Doo's picture

Renting puts you at the mercy of the landlord.  Rent goes up as much as the rental market will bear.  Something breaks - call the landlord - he gets to it on his own good time. Areas where there are a ton of rental houses often see the neighborhood decline.  No pride of ownership to maintain the houses in the neighborhood.

I don't think that there is anywhere you can go to live "free" with no costs. With a house - you never own it because of property taxes & maintenance.  With renting, the landlord owns you.  You are going to trade your time to buy shelter - either your own home or renting. 

Sonny Brakes's picture

Have you ever stopped to reflect on why the price of a house has risen higher and faster than people's ability to own their own home? I'm a home owner who has to go where the work is, which isn't in my small one horse and open sleigh town. The industrial base is on its last breath, but I enjoy the peace a quiet of living here. I wish I could find someone from the next generation to rent it, but they can't afford it, again because of the limited employment opportunities in the area.

Home ownership is a long term commitment; like a marriage except longer.

Scooby Doo's picture

Have you ever stopped to reflect that I might live in a dying town too?  Home ownership is down because manufacturing went away here too.  Most available jobs are service (restaurant & retail) jobs. The good manufacturing jobs left long ago.  There are a few but they are being bled dry by the combination of foreign competition who can produce for less & the squeeze in wages from the unions.  I'm not so much anti-union as I am a realist.  If manufacturing jobs move to non-union shops/countries, then maybe the union wages are no longer affordable for the manufacturer.  That in turn, will lower the wage base & thus home ownership. Huge downward spiral. As you mentioned, people need to be flexible because they need to move to areas with more opportunities. 

Our lower east side of town has been devastated by homes that have turned into low-income rentals.  Uncle Sam pays the rent &  the tenants destroy the house & the neighborhood.  Drugs, crime & overdoses are rampant - a daily occurrence. So, our local leaders have turned to bringing in refugees. The lower east side looks like little Fallujah.  And, Uncle Sam pays their bills too.  That does nothing to encourage home ownership nor to bring in more jobs. 

I also wish that things were different.  I hate seeing our city die a slow painful death.  

Sonny Brakes's picture

Which town are you in? I'm in northern Ontario, Canada and it's a dying town, but things are not as bad as you describe your town. Immigrants usually adapt to our values if and when they choose to come and live here. It's a place where kids are still able to ride their bikes and participate in activities. The price of is high, but everything else (property taxes, utilities, housing) is relatively cheap.

man of Wool's picture

Just raise interest rates you dumb ass Carney. 1% for starters.

RadioactiveRant's picture

Can't see our big nosed friends being that popular when this debt shitstorm hits the fan.

gunzeon's picture

When a significant voting block is facing mortgage default were interest rates to return to "normal" levels, then interest rates are doomed to be forever low.

Maybe the UK could try what Australia does; rather than print their own money, they allow foreigners, mostly chinese, to bring bags of money and so continue to inflate the housing market, keep prices on the rise, and so give Aussies a boost in worth generally, providing they're on the ladder ... Joe average not on said ladder is unconsequential given their duopolistic cronyist political system and bank dominated economy.

wrt the UK, maybe all the New European Settlers are loaded with bullion, diamonds, or bitcoins for ex and so will be an economic boost rather than a burden !!!

... juss kiddin

Cordeezy's picture

These are a direct result of low interest rates creating a bubble in asset prices. If they can't afford the payment simple extend the loan is the Banks answer

www.escapeamazon.com

rent slave's picture

It's only 35 years.I've been paying rent for 50.At least,they'll have a house at the end of that relatively short span.

PT's picture

The devil is in the details.  Some got in lucky and now their ongoing costs are lower than rent.  For many poor, the price of rent dooms them to slavery for the rest of their lives.  For some rich, the rent they pay is heaps cheaper than the price of buying.

I have not checked the numbers recently but the following figures were true for my area approx one decade ago:
minimum wage $400 per week
cheapest rent $300 per week
cheapest mortgage in cheapest suburb $400 per week ( $250k for 25 years @ 7% - okay, interest rates were probably cheaper than that at the time but remember this is the cheapest house in the cheapest suburb - i.e. it's gonna need work)

or you could rent a million dollar home a few blocks from the beach for $400 per week.
million dollar mortgage  = $1600 per week ( 25 years @ 7% )
- the rich guy would be better off renting and investing the difference.  The poor guy would be better off renting if he had the money.

any_mouse's picture

A house that has had likely two roof replacements, siding replaced or painted, a few water heaters, windows, HVAC, etc. Then there is the yard with trees, weeds, mowing, bushes, fencing.

Meanwhile Section 8 has moved in over the years and when you have paid the mortgage off, your neighborhood is no longer the one you moved into. The current market price for your house at this point is now less in nominal dollars.

Ital Scratch's picture

Good thing is that nothing bad can happen over the span of 35 years. No diseases, divorces, wars, "financial crises" and other unicorns.

 

I'm seriously opting for 1 hour more comute time on work day vs 20 years of moar debt. That's how ridiculous home prices are in my shity. Despite "wonderous and overall greatness" of my country's economy, prices are not going down as banks are holding our politicians by the balls and they obidiently, from time-to-time, pass new policies about "helping the young to get their first home" and other bullshit moves which are only keeping prices on these abhorrent levels...

homiegot's picture

That's what I did, and many other people. Because everyone is moving here, home prices have shot up about 35% in the last 4 years I have have been here. There is no escape. only temporary relief. 

any_mouse's picture

A Central Bank is worried about shackling people to a lifetime of debt?

Maybe they need more Colombian cocaine in the City of London.

Source: The Onion?

Watson's picture

The BoE is worried that house-price falls over the 35 years could lead to the banks owning partly unsecured debt.
The BoE is not worried about people, just the UK banking system, populated by such
pillars of competence as RBS.

House-price falls are rare in the UK (but not unknown).
But if falls happened now, when everyone and his dog owns at least one place
(and possibly many more via buy-to-let schemes) life might become interesting.

Watson

Lostinfortwalton's picture

If you have explosive growth in the valuation of your house it doesn't matter if you ever pay it off or not, the only provision is can you sell it and move to an area where sane house prices prevail. A Londoner sells his house with 10 years (or 20) left on the mortgage, banks the fat equity, and buys a nicer retirement home outright in Suffolk. Only way he is screwed is if the prices in Suffolk start to match those in London.

Lostinfortwalton's picture

In parts of Chris Christie's New Jersey recent retirees who have paid off their house can't afford to pay the property tax and are forced to sell. Thanks Chris.

Lost in translation's picture

NJ = CA before Prop. 13

Howard Jarvis helped the corporations, no question, but he put an end to the type of cruel situation you describe.

Scooby Doo's picture

In NJ, Our property taxes were $1000 per month.  We sold a long time ago & moved to a more reasonable area in another state.  

silverer's picture

That must have been a long time ago.

Scooby Doo's picture

Almost 10 years now.  The house we sold then is now going into foreclosure.  We lost our asses on it because we bought it at the top of the market. We sold on the way down, (not by our choice - job situation changed & we had to move.) But at least we sold.  

Property taxes haven't dropped, though

silverer's picture

Don't blame Christie. It took about 35 years of incompetence to get to where it is now. Before Christie was ever governor, townships were spending money like water, buying short bed pickups with chrome wheels and diesel engines. Just about every town has its own fire dept., and fire chief, and assistant fire chief, each with their own vehicles and gold leaf lettering. Somebody once told me one out of every four people in NJ works for the state of NJ. Christie walked into all that, and the pension mess, all created by prior governors over the years, all locked into law. So even if Christie isn't the greatest governor ever (I'm not a Christie fan), it's sure not fair to blame him for what you see in NJ. If you were smart, you got out of NJ 20 years ago.

JailBanksters's picture

Why stop at 35 why not 70, just pass the debt on to your unborn children.

You might think this is Immoral, but this is exactly what the Government is doing, borrowing money that doesn't exist to be paid back by Tax Payers not even born yet, so people of today can live in a wonderland.

 

silverer's picture

The government already passed the debt onto the unborn children in the US. The only way to win against the government is to not have children. Those DC assholes aren't good enough for your kids. Let them fill the US up with useless, non-working, subsidized foreign slaves, and I hope they're happy with them. They will reap what they sowed.

all-priced-in's picture

It is easy for me to see that dependence on government makes people weaker - the role of government should be to make people stronger.

 

But for some reason many seem to think the exact opposite - that government dependence helps people.

 

I can only guess it is a short term VS long term issue

 

You lose your joib - have no money so you have no food - gov handing you an EBT allows you to eat - but after a few years you forget how to do a job and your kids learn that living off the government - even though it is a shitty life - is the only one they know.

 

 

 

 

Lostinfortwalton's picture

The houses in my pleasant college town in the Shenandoah Valley are 70% of the national average. My home, valued at $233,000 currently here would supposedly get $332,000 nationally and a mind-boggling $822,000 near the DC Beltway where homes are 247% of the national average.

silverer's picture

But it's really good for the banks! How the banks go, America goes. (pretty sad, if you ask me)

gdpetti's picture

Yes and no... like any 'sharecropping' system, it gives them more dominance, but the economic 'pie' is much, much reduced... they can't have it both ways... which has always been the end of the line for our western system as it cycles back to its origins based in limitations, even or especially with the money system itself... less for others, means less for everyone, even the banksters and those behind them... the pie shrinks even if their share increases, it increases in a pie that continues to shrink... empires that  fail to continue to expand, begin to collapse and fold in on themselves...

Stuto's picture

???? The youth and unborn are DEBT SLAVES with NO future.

Sonny Brakes's picture

Nothing will change until people (victims) decide to act in their own best interests. Victims should be banding together to voice their concerns. Or do you think you can go it alone? We have to agree that it takes at least two people to believe a lie for it to become the truth. No one wants to rock the boat.