Cover: Are cross-generation mortgages panacea or problem?

Cross-generation mortgages: What’s the verdict?

Experts offer their views on whether they really solve any problems

The UK government is considering offering cross-generation mortgages to people who may not be able to pay off their mortgage over the entirety of the term due to their advanced age. When an older mortgage holder dies, their children would take over the mortgage in their name until the loan is paid off.

The new plans would see homeowners take out 50-year mortgage terms with little or no expectation of completing mortgage repayments during their lifetimes. It is important to note that inheritance tax is only levied on the net value of the property, so if it is mortgaged when the owner dies, the inheritance tax bill will be lower.

Melanie Spencer, business development director and head of payment and mortgage services at finova, explained it is reassuring to see that tackling the housing crisis is high on the government’s agenda.

“We are certainly in need of new and exciting ways to help more people onto the housing ladder,” Spencer said.

However, she added that the market must exercise a degree of caution when it comes to solutions such as multi-decade mortgages. While relatively long-term mortgages are helping The new plans would see homeowners take out 50-year mortgage terms with little or no expectation of completing mortgage repayments during their lifetimes. It is important to note that inheritance tax is only levied on the net value of the property, so if it is mortgaged when the owner dies, the inheritance tax bill will be lower

many reach their homeownership goals in today’s higher-rate climate, Spencer said the prospect of cross-generation mortgages may carry its own set of risks.

“For instance, there is no guarantee that the child being handed the loan will be financially equipped to pay off the debt – and how do we assess their affordability?” she questioned.

Mortgage rates are rising at their fastest pace in 15 years; Bank of England figures have revealed the average interest rate on a new home loan

Kevin Roberts

hit 1.96 per cent at the end of May 2022, up from 1.5 per cent in November 2021. In addition, homeowners moving to a new deal can expect to see their disposable incomes shrink by seven per cent, according to data collected by UK Finance.

On top of that, Spencer explained that the children may not want to live in their parents’ home, especially if they fly the nest, thus creating another generation of mortgage prisoners.

“Ultimately, the key challenge of today lies in tackling the lack of supply on the market, and without a coordinated effort to solve this fundamental issue, the percentage of first-time buyers getting onto the housing ladder will keep falling,” she said.

As such, Spencer believes the market needs to look beyond solutions that leave people with more debt and find ways to enhance supply levels to meet affordability needs.

Meanwhile, Kevin Roberts, director of Legal & General Mortgage Club, emphasised that with the cost-of-living crisis having a significant impact

Melanie Spencer

on borrowers’ affordability, and the number of products on offer falling, there was a need for creative solutions.

“With the price of everything from food to fuel rising in recent months, getting on the property ladder is no easy feat, so it is certainly encouraging to see the government recognise this dilemma,” he said.

“While the pandemic sparked a new wave of innovation, we must sustain this momentum in the long-term.”

As far as long-term mortgages are concerned, Roberts explained that other countries have had great success with solutions that can be passed on to the next generation. He believes it is an idea the market can be open to, as long as it remains pragmatic in its approach and the industry is engaged in helping find solutions that work.

Roberts concluded by saying, “With all innovation efforts, we must ensure that borrowers remain the main beneficiaries, and that there are enough affordable homes on the market to begin with.” M I