Banks eye 50-year home loans

New Zealand banks look set to offer 50-year mortgages to cash-strapped buyers as the Kiwi home ownership dream slips further out of reach.

Borrowers could be lumbered with debt into their twilight years as loans lasting four and five decades bring cheaper monthly repayments but higher interest costs to buyers.

Australian finance company GE Money is already offering 40-year loans across the Tasman and the Commonwealth Bank and Westpac are considering 50-year mortgages.

On Friday GE Money bought Superbank's mortgage assets in New Zealand. Managing director Jim Cock said the company intended to "invest heavily and grow significantly" in New Zealand offering "more innovative products". He told the Herald on Sunday it would look at long-term mortgages but there were no definite plans at this stage.

And ASB, owned by Commonwealth Bank, said it was open to such mortgages if customers wanted them.

"We're always reviewing our customer service," said corporate communications manager Debby Bell. "We would certainly look at this if there was customer demand for it."

Mortgage brokers believe the Kiwi market is ripe for long-term loans. Home ownership rates are dropping rapidly as the market boom and rising interest rates put house prices out of reach for many.

Extending terms past the current 30-year limit would make it easier for buyers to qualify for home loans and offer lower repayments.

Dave Shatford of Approved Mortgages said mortgage brokers would "put the demand on".

"As soon as people start hearing about it we will say to the lenders 'what about it, we've got people asking for it'," he said.

Professor Bob Hargreaves of Massey University's Real Estate Institute also said customer demand would drive the new mortgages. "Banks have an unlimited amount of money to lend. The banking community's very competitive and... these financial people are very innovative. If one starts offering this the others will follow."

But the long-term loans have financial experts worried about buyers signing up for a lifetime of debt. Extending a $300,000 mortgage from 30 to 50 years would save just $160 a month in repayments but put the cost of the loan up from $790,000 to $1.2 million.

Retirement Commissioner Diana Crossan said that raised the spectre of generational mortgages, which already happened in Europe. "In lots of parts of Europe the loan can be passed through to the children."

She said the loans would mean people would simply have to work longer. "[If people are] working into their 80s that does give me a shudder... there will be people who have to. But people will be working up to their 70s [now] anyway."

Hargreaves said the new loans would be an "okay" product for first home buyers. The lower monthly rates would mean they were more likely to qualify, then when their earnings rose, they could pay off the loan quicker.

"Unless you look at it very carefully you're going to pay a huge amount of interest," said Hargreaves.

He said banks would need to be careful in assessing such loans, especially for older customers. "If you gave a 50-year-old a 50-year mortgage and all of a sudden they're on a superannuation, you're back to $13,000 a year. "

Hargreaves said few of the loans were likely to last the full 50 years because most homes were sold within 10.

"In the short run it will allow more people to get into loans and the probability will be that most of those loans don't go the full distance. In that sense it's probably not that bad."

Financial adviser Simon Hardie of the Shape of Money said it would be foolish to take out a 50-year mortgage. "It's just ridiculous. You don't want a debt for 50 years. Anything over 30 years is too long."

Shayne Gough from Mike Pero Mortgages said he would want to make sure people knew what they were entering.

"It's about four lifetime murder sentences. It's more of a psychological barrier. I wouldn't want to sit my client down and say 'what are you doing for the next 45 years? Well this is what you're doing'."