A mortgage for life – and beyond
Last week, the first ‘inter-generational’ mortgages in this country was launched. But are they a good idea?
"There are some things I would like to have inherited from my parents," says Antonia Senior in The Times, "but a huge great mortgage is not one of them."
Last week, the Kent Reliance Building Society launched the first inter-generational' mortgage in this country, an interest-only mortgage whose capital sum remains unpaid until the death of the mortgagee. When that happens, their children can decide on whether to take on the mortgage or sell the house. Kent Reliance chief executive Mike Lazenby says in The Herald: "We are trying to break the mould and say to people It's your life, you make your own decisions and we will give you the opportunities'."
But experts remain sceptical. "There are real issues of affordability," says Andrew Montlake, a partner at mortgage brokerage firm Cobalt Capital, on the BBC. "The initial payments may be lower because only interest is being paid, but how are people going to afford these interest payments in retirement?"
Julia Harris, a mortgage expert with research organisation Moneywatch, is equally unconvinced. "Although these [inter-generational mortgages] may be affordable in the short term, they are more expensive in the long run."
This is an undeniably lucrative business, giving lenders the opportunity to grow fat on a never-ending stream of interest payments. Lisa Bachelor warns in The Observer: "By the time the parents are dead, the children may well be retired themselves" and have their own debts, including a mortgage.
They are not likely to welcome additional debt from their parents, even with a property attached. It's also possible that such creativity' is fostering an unhealthy attitude to debt, as "it sets a dangerous precedent and says that living with big debts over long periods is acceptable", says Credit Action's chairman Keith Tondeur in The Times.
It's interesting to note that as property prices soared in 1980s Japan, intergenerational mortgages reared their ugly head and kept that country's balloon taut for a little while longer. And we all know what happened next.