Foreign Perspectives

Perhaps one of the most interesting developments in the mortgage market in recent years is the arrival of chequebook mortgages. That’s “interesting” in the Chinese sense of the term in their curse “may you live in interesting times”.

A key aspect of a mortgage is that it’s a very, very long term committment. Typically the term is at least 25 years over which time untold numbers of changes to your life and lifestyle can take place. Children can arrive, grow up and leave home over that time, interest rates can go from 5% to 15% to 5% (and have done exactly that in the past), the area in which your house is in can even go from “up and coming” through “marked for demolition” and back to “attractive” (which has happened in areas of Belfast). That’s just the changes that can happen to anyone.

So, as I say, the arrival of chequebook mortgages is “interesting”.

For one thing, 25 years is so long that you just don’t think about arriving at the end of such a period and that, for a mortgage product, is a fatal error to make. Chequebook mortgages actively encourage that kind of thinking in that they effectively give you an overdraft of perhaps £100,000 or even more. It’s all too easy to spend that on the day to day things and find that you’ve absolutely no way to cover the final mortgage payment 25 years down the line.

Ah, but you’ll look at your statements all the time, won’t you? Many people don’t but even for those that do, that 25 year period is just too long to appreciate the problems that can befall you by spending just a little bit too much as you go along.