Lending into retirement and intergenerational mortgages could help solve the UK’s housing affordability crisis, according to industry leaders.
Speaking at a recent round-table hosted by MRM, participants called for new ways to help more people buy homes.
One idea raised was Japanese-style intergenerational mortgages – these loans run for 50 years or more and are paid off by the next generation.
This means monthly payments are lower, making it easier for younger people to buy.
John Davison, head of product, proposition and distribution at Perenna, said: “The longer-term mortgage idea is very new in the UK, whereas other countries have intergenerational mortgages left as part of people’s estates.
“We have a cultural belief that we must pay off all our debt before we die and pass on our property mortgage-free to our children – but I’d rather my parents enjoyed their money and I’ll pay off the remaining mortgage from the property sale when they’re gone.
“There could be a shift in thinking coming for the new generation.”
Claire Cherrington, director PMS and bankhall at Sesame Bankhall Group, said one answer could be raising age limits and letting the debt be repaid from the borrower’s estate.
Cherrington said: “While later-life borrowing may not be the ideal solution for the majority, it could provide a practical solution for those who haven’t amassed equity by retirement.
“For these people, it could make sense to continue paying a mortgage in retirement instead of renting, especially if you’ve got a pension that covers it and you can afford it.
“We need to think differently to tackle this and help broader society, as house prices won’t significantly fall or incomes significantly rise faster than inflation, so the affordability challenge remains.”
Cherrington added: “But for those generations who are renting and can’t afford to get on the property ladder, looking at different term lengths and structures could give them a chance to avoid renting into retirement and to build wealth.
“There are, however, still constraints in current regulations that prevent us from thinking differently about how to tackle some of those problems.”
Tanya Elmaz, director of intermediary sales for Together, said: “We already have slightly longer terms for our residential mortgages, but we’ve got an aging population so it doesn’t matter what type of lender you are, you cannot have your eyes closed to the fact that we’re going to be working for longer.
“Retirement ages keep moving, so by the time some of us retire we might be a bit older, as we’re working longer.
“So, lenders will need to meet the needs of older customers as well as younger ones in future.”
