Earlier this month, U.S. President Donald Trump proposed offering 50-year mortgages to homebuyers in the United States as part of his housing affordability agenda. On its face, the idea might sound attractive: extend the terms so that monthly payments drop, thereby improving affordability for retail clients, without introducing a new situation that dramatically alters the traditional US "MBS" model, which involves pooling these products into investable securities. Could this sort of agenda work here? We aren't entirely sure it can work in the US, let alone here. In this week's blog, we examine the pitfalls of this strategy compared to simply increasing the housing supply at a faster pace.
A key attraction of a 50-year mortgage is that, for the same principal and interest rate, spreading payments over fifty years results in a lower monthly payment compared to a conventional 30-year loan, or in the UK, say a 25-year mortgage. Analyses show that a 50-year loan generates significantly less equity in the early decades, and the total interest paid over the loan's life is substantially higher. For example, one estimate found that under a 50-year fixed mortgage, you might only retire 11% of the principal after 20 years, compared to 46% under a 30-year mortgage. In short, you pay more in total, build equity more slowly, and carry debt longer. One article published on Bloomberg indicated that the additional interest paid under a 50-year loan compared to a 30-year loan could be in the hundreds of thousands of dollars. Therefore, what appears to be a slight reduction in monthly payment may actually be a significant increase in lifetime cost.
Now we know what you are thinking: if you are reading this, you likely understand lending mechanics and don't need us to point out the math. However, one thing that's perhaps not so obvious is the overall market liquidity and the psychology of markets. People tend not to move when they have paid off their mortgages; they move when they are in a position to remortgage. This is in everyone's advantage, including the banks issuing these products, as it allows people to build equity faster, enabling them to borrow more. So, you want a quicker turnover of cash; it's more profitable for consumers and better for lenders and asset prices to avoid a stagnant market short on buyers.
Home ownership ultimately isn’t just about having shelter anymore; it’s about building wealth via equity. A 50-year term slows down equity accumulation because early payments are heavily interest-loaded, and fewer payments go towards the principal. As a society, here and in the US, we need people to achieve equity at a quicker pace; if we don't, we will have to fund their retirement through the state in later life, so the products on offer must create wealth, not delay it.
Crucially, these sorts of policies don't strike at the heart of what is driving housing unaffordability. The real bottleneck in Western markets is insufficient housing supply relative to demand. If our theory is correct, offering longer-term mortgages without increasing the number of units will boost demand, which in turn will drive prices even higher. Therefore, while monthly payments may decrease slightly, the increased number of buyers competing for the same limited stock will likely offset any benefit. While much of the focus has been on the U.S in this article, the UK housing market and mortgage system are different, and would make this sort of project even more complicated to execute. In the UK, typical mortgage terms range around 25 years, and the infrastructure, regulation and market practices are built bespoke around those shorter horizons. Extending to 50 years would deviate significantly from standard practice and likely reduce market participation or increase costs.
We mentioned MBS products, so as not to assume a reader's knowledge of that system, in the U.S., a large share of mortgages are bought by agencies such as Fannie Mae/Freddie Mac and securitised into mortgage-backed securities (MBS). That system allows long-term fixed mortgages to be funded in a standardised way. The UK, by contrast, relies much more heavily on retail deposits and covered bonds, shorter fixed periods, and a more liability-sensitive funding model for banks. Extending to 50 years would require significant changes in funding, hedging and market structure; it would become a major undertaking. Essentially, funding for long mortgages in the UK would expose lenders and investors to much greater interest-rate risk, and funding costs would increase. Borrowers would likely pay a premium, as they always do when costs need to be passed on. In other words, you’d get the downsides of long-term but lose much of the benefit.
So, what's the bottom line here? At its core, the housing-affordability crisis isn’t caused by the length of mortgage terms. It’s caused by insufficient supply, high construction and land costs, regulatory constraints and demand outpacing supply. So, instead of relying on crude attempts at financial engineering, such as 50-year loans, the real solution is much more straightforward: build more homes, particularly affordable ones, in the right places. That means loosening planning bottlenecks, reducing build costs, encouraging efficient design, and ensuring infrastructure keeps pace with housing growth. When supply rises, competition for homes falls, and affordability improves naturally without stretching debt over half a century.
In both the U.S. and the UK, if policymakers truly want to make home-ownership accessible and sustainable, they should focus on supply rather than simply reshaping debt. A shorter-term mortgage with manageable monthly payments, good equity growth, and secure funding is far preferable to a fifty-year stretch that defers costs, increases risk, and diminishes real ownership benefits.
Invest & Fund has returned over £330 million of capital and interest to lenders with zero losses, showing the rigour that governs our business.
To take maximum advantage of this robust and exciting asset class, please visit www.investandfund.com
Don't invest unless you're prepared to lose money. This is a high-risk investment. You may not be able to access your money quickly and are unlikely to be protected if something goes wrong. Take 2 minutes to learn more.