Long term loans concern

Ray Boulger, senior technical manager at Charcol, said: "UK house prices are continuing to rise in excess of earnings, therefore people are looking for larger loans in order to afford these properties. If this trend continues, the only way repayments can remain affordable is by increasing the term of the loan.

"An extreme example of this shift has already been seen in Japan, where despite 0 per cent interest rates, sky-high property prices have made housing unaffordable to the majority of residents on a 25 year repayment term. This in turn has led to the development of mortgages with longer repayment terms - some as long as 100 years. With these products borrowers only pay interest on the mortgage, and therefore never own the property outright. The consequence of this is that the children inherit the mortgage as well as the property."

"Whilst we do not expect the UK to face such an extreme situation, we do anticipate a shift towards longer term mortgages. However, for long term fixed rates to be attractive, lenders will have to offer products with more flexibility and at more competitive rates (although their ability to do this will depend on the money markets). The fact that people are living and working longer means that loan terms of 30, 40 or even 50 years do not seem as drastic as they would have done 30 years ago when life expectancy was considerably less."

"The home will increasingly become the main stay of efficient financial planning as more lenders offer more flexibility on more mortgages. We are already seeing mortgages becoming an active part of financial planning much later into adult life. The home equity release market is a case in point and many buy to let investors are investing in order to supplement their pension income."