At a roundtable on the future of the mortgage market, which was hosted by MRM, key industry figures discussed ways to open homeownership up to more people.
In its report on the roundtable, MRM noted that in 2000, the average home in England was around four times the average salary. According to the Office for National Statistics (ONS), it’s currently almost double that, which highlights the necessity for innovation.
Intergenerational mortgages are a potential answer
An idea raised at the roundtable was intergenerational mortgages, which are popular in Japan. These span multiple generations, with borrowers taking out ultra-long-term mortgages – frequently of 50 years or over. With this type of mortgage, the expectation is that the borrower’s children will inherit the property and the remaining debt.
Monthly repayment costs are significantly lower due to the length of the mortgage term, meaning homeownership is more accessible for younger prospective buyers.
Aldermore Insights with Jon Cooper: Edition 9 – Why lending strategy is becoming more central in buy to let
Sponsored by Aldermore
John Davison, head of product, proposition and distribution at Perenna, explained: “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.”
Later life borrowing could be ‘a practical solution’
Borrowers are allowed to take their mortgage into retirement by numerous lenders. However, most have maximum age caps before which the loan must be repaid – typically 75-80 years old at mainstream lenders.
Claire Cherrington, director of PMS and Bankhall at Sesame Bankhall Group, mentioned the possibility of lenders raising their upper age limits. This would mean the debt is repaid by the borrower’s estate after their death.
She 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.”
Lenders must adapt to changing needs
Regarding pensions, MRM quoted a report from the International Longevity Centre that suggested that those born after April 1970 may have to wait until age 71 to claim the state pension, significantly higher than the current age limit of 66 – which is due to rise to 68 in 2044.
Mortgage lenders will therefore have to adapt to changing working patterns.
Tanya Elmaz, director of intermediary sales at specialist lender Together, said: “We already have slightly longer terms for our residential mortgages, but we’ve got an ageing 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.”
