A Conveyancing Association spokesperson has offered a legal perspective on the Bank of England’s plans to re-introduce 30-year fixed-rate mortgages in a bid to avoid a possible housing bubble in the UK.
Peter Rodd, a spokesperson for the Conveyancing Association and senior partner at Boys & Maughan Solicitors, has offered the following advice:
1. General overview of long-term mortgages
“There can be little doubt that people are becoming increasingly comfortable with long term mortgages. They have the advantage of reducing the borrower’s monthly costs but, of course, also increase the overall amount that is eventually paid back.
“Such mortgages could be seen by many as the only affordable option when faced with the Financial Conduct Authority’s so-called ‘stress tests’ which lenders will be fully implementing by the end of April. Under the tests borrowers are not able to take on loans unless they can show how they could afford to repay them when interest rates rise.”
2. What are the legalities of passing long term mortgages on to children?
“Children are not contractually liable to pay their parents’ mortgage when they die unless they are party to the mortgage deed. If the child wishes to live in the home and a mortgage is outstanding on it that they cannot pay off, they can either take out a new loan with the same bank or building society as their parents or re-mortgage and pay off the existing loan.
“It is feasible, of course, for parents and children to borrow jointly. In these circumstances a child could subsequently wish to move out and take out a mortgage on another property with a new partner. If this happens the mortgage lender might not be prepared to release them from their original commitment.”
3. Most lenders won’t offer long term mortgages if the home-buyer does not have a certain number of years before their fixed retirement date — but what happens if you want to change your retirement age after securing a mortgage?
“If a borrower wishes to extend the term of their mortgage they can approach their lender for a decision. Lenders are prepared to extend loans where the borrower has the means to repay. People might also wish to lengthen their mortgage if interest rates rise and they are unable to fund the increased payments. In this situation they would also approach the lender.”
