Mortgages – What Will Be Next?
The shape of things to come
Maybe some forty years ago mortgages were very solid things that you took out: you would stick with the same company for the entire period of the loan and you could find fixed rate deals that would also last the full twenty five years.
Things have changed drastically since then. We thought it would be interesting to have a look round at the signs of things to come.
If you think things are bad here with the price of property spare a thought for those crammed into the tiny space of Hong Kong where property has long since been built vertically to limit its footprint on the ground.
Property is so expensive out there that the mortgage loan often outlasts the life of the person taking out the mortgage! It has become quite common for the loan debt to be passed on to the dependents of the deceased. Clearly the taxes on property at death must also be very different from over here, but it is the extended length of the loan that makes the monthly repayments affordable. How long before a similar product emerges here?
100 years loan
When these typically one hundred year fixed rate loans were introduced in China property prices apparently went up even more. In this country the Chancellor of the Exchequer has said in the past that he favours a return to long term fixed rate mortgages, as they would take our economy away from being so sensitive to interest rates. But there has been very little take up of any products of ten years fixed term that have been available from the Halifax and it seems that in our mortgage buying culture of chop and change, where it is common place to re-mortgage for a better deal, these long term tie-ins simply aren’t wanted.
What is clear from the recent past is that the market can adapt to consumer demand. Even in the past five years there has been a shift of products that were once considered marginal to become part of the mainstream. Self-certification mortgages for the self-employed are typical example of this. The Industry was forced to recognise that the 3.5 million self employed in this country actually needed products to help them buy property and so more and more lenders made self-certification products available.
Charcoal has now also adjusted some of its mortgages to reflect current lifestyles. It has introduced a ‘divorcee mortgage’ which takes maintenance payments into account and defines them as income. It’s an obvious step but nobody has done it before.
In the future the mortgage market will get even more competitive, when long term fixed rates were available back in the sixties there were few lenders around. It was market forces that changed the look of mortgages and forced short term fixed rate periods. When the high inflation rates of the nineteen seventies hit the economy it made absolutely no sense whatsoever to have the long term fixed rates and they died out overnight.
Competition in the market will benefit buyers. Incentives such as no valuation fees, contributions towards solicitors’ fees, cash-back additions, all add to the attractiveness of the product. Just look at what competition has done to the credit card market. Could there ever be interest free periods on mortgages?
What’s clear is that each product now is far more tailored to each individual customer. In the future will buying a mortgage be more like going to a tailor to try on a bespoke suit, made to measure? Will the lender sit down with you and discuss your monthly finances, your long term aims and your short term goals? Will they then use that information to create in front of your very eyes, a financial package specific to you? The technology is there to be able to do it right now.
It will be interesting to see how long it takes a traditionally slow moving and conservative industry to catch up with the very real demands and power of the individual consumer.
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