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Inter-generational mortgages add new layer of complexity to advice – Wilson

by: Stuart Wilson, managing partner, Later Life Academy
  • 15/06/2018
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Inter-generational mortgages add new layer of complexity to advice – Wilson
It's perhaps not surprising the Building Societies Association (BSA) has commissioned a study into the ‘viability of inter-generational mortgages’, given the demographics of the housing market. 


House price levels, the increased importance of the parents (or grandparent) to first-time buyers, the growth in equity release and later life lending, are just a few of the determining factors in today’s mortgage market.

It should also not be lost on both advisers and their clients that the BSA is behind the study, because it’s been clear for a while that the society sector has needed to look beyond the mainstream when it comes to securing its market share.

It would also be fair to say that, in order to survive in a highly competitive mortgage market, societies have had to be nimble and fleet of foot with regards to their mortgage offering, whether that be the sectors they’re active in, their underwriting, criteria, products or pricing.

As a result, you’re more likely to see societies active in, for example, buy-to-let, mortgages for the self-employed and contractors, high loan-to-value (LTV) lending, and increasingly later life lending.


Happy hunting ground

The latter appears to have been a happy hunting ground for societies in recent times, with a willingness to increase maximum lending ages, for example, that has only now been taken up by their more mainstream peers.

The next stage of course is to review what later life borrowers are using (or intending to use) their loans for.

I suspect many societies have seen an increase in loans being taken out in order to gift family members living inheritances, which are used to help fund property purchases by supplementing the deposit.

Of course, societies have not been averse to offering guarantor mortgages, or loans where an older family member puts away a significant amount in a savings account, which could be drawn upon should the offspring get into trouble with the mortgage.

It’s all about offering the loan but with the necessary caveats attached in order to give the society less risk.


Inter-generational mortgage formalises link

However, what we’ve not tended to have is a formal link-up between the later life (or equity release) mortgage and the first-time buyer’s product.

What we have with inter-generational mortgages is a much more formal attachment.

In these cases without both parties’ agreement, and no doubt opting for the inter-generational mortgage from the same lender, this conjoined transaction is not going to take place.

As advisers, if these types of products become more prevalent, it will make for an interesting dilemma, specifically if the deal on offer to either one (or both) borrowers is not deemed to be the best or most appropriate.


Make it competitive

Indeed, this will be a major challenge for societies or whichever lenders decide to bring these products to market – how can they make the entire deal for both older and (presumably) younger borrower competitive?

Again from an advice standpoint it adds a layer of complexity to the process – especially, for example, if you’re an adviser who only offers residential mortgage advice and doesn’t also have access to the equity release alternatives.

This seems a good point to stress the overall benefits for both adviser, and especially client, if they can offer advice on residential loans, later life mortgages, equity release and – should they come over the horizon – inter-generational mortgages.

Only through such across-the-board advice provision can an adviser truly know that they are recommending the right product – anything less is likely to displease all borrowers, whatever age they are.

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