Soaring house prices could force Kiwis to pay for mortgages across 40 years rather than the former standard of 20 years, with extra interest as a side effect.
Massey University banking expert Claire Matthews said sky-high house prices have already forced mortgage terms to extend “a little bit.”
“It has extended a little bit, and it is associated with the higher house prices. As interest rates came down, making the same repayment meant [people] had a shorter term. But as they need to borrow more, they’ve had to extend the term to keep the payments at that level that’s affordable,” Matthews told Stuff.
“So I think [the term] has got to 25. It may even have got closer to 30. But I think there’s probably still some room there for people to look at.”
Matthews pointed out that much longer mortgage terms could be harder to sell as many people already find 20-year loans overwhelming.
“To look at being committed to making those loan payments for 40 years, I just think psychologically it would create some issues for people,” she said.
Many banks might also be stricter on the 20% minimum deposit because early repayments will be mostly interest, says Matthews.
“You take longer to build up your equity. Therefore, there’s a slightly higher risk for the bank,” she said.
Infometrics senior economist Brad Olsen said a 40-year loan might happen in the future, but repayments are not a major problem.
“It really is that pole-vaulting that you need to get on to the bottom of the housing ladder, that causes the main issue,” Olsen told Stuff.
“That’s why high house prices are an issue. For anyone who’s out there who’s trying to scrimp and save for a deposit, every month it seems like everything gets further and further out of reach.”