The inter-generational mortgage: It may not be a term you are familiar with at the moment, but that could be about to change. One mutual society, OneFamily, is all set to introduce a new type of loan that could help younger family members get onto the housing ladder for the first time.
And the way this will happen is very different to any kind of mortgage product you may have seen before.
How does an inter-generational mortgage work?
The clue here is in the name. the idea is that elderly people will be able to get a mortgage to help their grandchildren (or children) buy a property when they would not otherwise be able to do so.
The idea is to solve some of the challenges faced by younger people trying to get onto the housing ladder. While many parents and grandparents will leave their children an inheritance once they are gone, this can be too late in terms of helping younger people get together the money they need to buy their own properties.
Properties owned by retired people are likely to be worth a lot of money nowadays – especially when today’s prices are compared to those that retirees paid to own them in the first place. That equity would be released and divided up among those mentioned in their will when older homeowners eventually die. However, many grandparents would like to help out their grandchildren in terms of helping them buy property, and this is where the inter-generational mortgage comes in.
Basically, the older homeowner will put up their own property as security on the purchase of another property for the younger family member. The scheme ensures that the person taking out the debt will be responsible for it, rather than the younger family member, who may otherwise struggle to get a home of their own.
Will it work?
Only time will tell how popular this new type of mortgage is, since it is not yet on the market. However, there is a chance it will become very popular among those who want to help out their offspring and grandchildren, but cannot do so in cash terms. If they are happy to take out a loan at this stage of their lives, their descendants will be able to take advantage of funds that would otherwise only come to them after death.
This can be a tough area to talk about for many people. But since tax bills on estates can be severe, could this be another way to manage them and to find an alternative solution?
The managing director of One Family Lifetime Mortgages, Georgina Smith, spoke of the need to ‘defend the equity’ that has already been earned in the properties owned by many grandparents across the country. Clearly, they are aiming to try and improve the situation for younger people who cannot afford a mortgage of their own. While it may not appeal to everyone in every situation, there is no doubt a market for the inter-generational mortgage does exist.