A new “creative” type of mortgage is being discussed by the government, that could result in children inheriting their parents’ debts.
New, ultra-long mortgages could offer cross-generational mortgages, with mortgage lenders offering terms of up to 50 years or longer. The idea could enable more people to build up equity in their home rather than paying rent when a mortgage is unattainable. The average home buyer in England currently spends 9.1 times their annual earnings to buy a home but could still save money on the amount required to rent a property.
Borrowers would not be expected to pay off their mortgage in their lifetime, which means they could leave their heirs with the outstanding mortgage debt.
Ministers hope the plan might encourage people to buy a larger or more expensive property now by taking out a larger loan paid for over a longer period. However, providing a mortgage that would remain affordable across several income generations will be a challenge. Regulation will also be needed and there is the danger that this arrangement could actually be viewed as ‘interest only’ borrowing under another name.
Mortgage terms have already been extended as house prices have steadily risen since the financial crisis of 2008. The maximum term currently available is 40 years, and 30-35 years terms are now the most popular among first time buyers. Only 10% of first time buyers currently choose a mortgage term under 20 years.
The idea is not new – Japan has been pioneering a 100 year mortgage arrangement aimed at boosting the property market in the country since the 1990s.
It is not yet known how children could protect themselves from inheriting a liability that is neglected, unmanageable or even in negative equity. Perhaps more attractive might be the provision of longer term mortgages for those multi-generational families residing in the same home.
To fuel an already over valued market with even more debt ridden home buyers will in no way be sustainable and, if anything, will simply to keep house prices artificially high. One thing that seems absolutely unacceptable to policy makers is the alternative prospect of property prices falling, thus making property ownership more affordable.
Don’t pass on a pig’s ear – ask an Independent Chartered Surveyor to inspect your new property for hidden issues to make sure it has been looked after in the way you expect.