Plans for 50-year intergenerational mortgages get cautious welcome

Long-term 50-year mortgages that can be passed on by parents to their children appear to be the latest idea from the government to address housing market issues.

Prime Minister Boris Johnson told reporters last week that the idea of 50-year mortgages was being looked at, claiming the government “wants to find all sorts of creative ways to help people into ownership.”

According to various newspaper reports, the plans would include allowing  longer mortgage periods that would let people to borrow larger sums, with the possibility of passing the debt on.

Longer-term loans aren’t new and Japan offers 100-year family mortgages that can be passed between generations.

Agents and mortgages brokers have remained cautious though.

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said any new idea aimed at increasing the number of housing transactions and supporting aspiring first-time buyers is good news.

But he added: “The proposed 50-year mortgages are likely to extend the burden of debt down the generations and reduce income for many in retirement as well as almost certainly add to house price inflation and make it more difficult for future buyers to step on to the housing ladder.

“I believe the majority of our prospective purchasers would rather see any additional resources spent on easing lending criteria and help towards raising deposits which are generally cited as the most significant barriers to home ownership.

“Further support for new home building and less restrictive planning rules, especially for small – and medium-sized house builders, would redress the balance between supply and demand while at the same time keep prices in check over the longer term.”

James Forrester, managing director of Barrows and Forrester, added: “Any measure that helps people into that elusive first rung of the housing ladder is gratefully received. 

“But a word of caution, a 50-year term means higher income multiples are required to facilitate the larger loans that the Prime Minister has said he wants to encourage.

“If interest rates escalate much further, these larger loans will be less affordable and we may end up with another 2008 on our hands. Let’s hope this is done sensibly therefore.”

Mortgage brokers were a bit more critical though.

Lewis Shaw, founder of Shaw Financial Services, described the idea as “so ludicrous that I can't quite believe it's even being asked as a serious question.”

He said: “Allowing people to stretch further for longer would have the opposite effect of what younger people need; it would push house prices even higher, exacerbating our already dire problem. It would cause huge problems, not just in the property market, by reducing transaction levels but massive financial worries about the banking system's safety.”

He said the mortgage market is functioning well and has innovative products and schemes to help people onto the property ladder.

Shaw added: “Many lenders already go to 40 years and up to age 75 as long as it's feasible. 

“We need houses to be built, and people need a pay rise. The government should stop with the dead cats and focus on the real issues rather than trying to grab headlines with this non-sensical policy that has no basis in reality.”