DANIEL NEWELL: Seriously, a 40-year mortgage? For some first-time buyers, it may be the only way to get a home

There can be no debate that the twin storms of a skyrocketing property market and a lingering cost-of-living crisis have made it so much harder for young people to get a foot on the housing ladder.

Rate relief from the Reserve Bank last month is unlikely to help. The small drop in the loan serviceability buffer may improve their borrowing capacity but that’s of little benefit given the insane house price rises of the past few years.

The average Australian mortgage in December was a record $665,978, according to the Australian Bureau of Statistics — up from $467,403 in late 2019.

For many, the dream of owning their own home is fading. And it’s making some consider a radical and possibly dangerous alternative.

A recent survey of 1013 people by comparison site Finder revealed one in three would consider taking on a 40-year mortgage.

An extra decade to pay off a mortgage? That means lower monthly repayments to pay back the principal.

Sounds pretty enticing, doesn’t it? But remember you’ll also be paying another decade of interest, and that financial burden spread over 40 years instead of 30 is not insignificant.

Four lenders in Australia are offering these supersized mortgages, three of those specifically for first-time buyers. Among them is Pepper Money.

“Borrowers are consistently seeking greater flexibility beyond what banks typically can offer; so, as a non-bank, we are stepping in to fill the gap,” Pepper Money’s mortgages and commercial property boss Barry Saoud told Your Mortgage late last year.

“This extended mortgage term addresses the real-life needs of borrowers facing housing affordability, longer working lives, and the rising cost of living.”

For those struggling to buy a home, that’s a pretty good pitch.

Graham Cooke, head of consumer research at Finder, said paying off a mortgage from now until 2065 had pros and cons.

“Owning a home has felt out of reach for an increasing number of Aussies,” Mr Cooke said.

“A 40-year loan can help some buyers get into the market sooner by reducing monthly repayments.

“While these loans may have lower monthly repayments, they typically end up costing a lot more over time.

“While 40-year loans do offer a lower cost route to getting your first foot on the housing ladder, staying with them until the end can be very expensive.”

Finder’s analysis shows the monthly repayment for the average loan would drop by more than $300 on a 40-year loan compared to an identical 30-year loan. But the full repayment would cost the borrower $316,000 more because of the extra decade.

The average age of a first-time homebuyer is now 36.

Even the thought that they could be paying off a home loan well into their retirement years — or will just have to work longer — may be worth the risk of not getting onto the property ladder at all.