It’s already difficult for young people to get a foot on the property ladder and with the average UK house price expected to exceed £450,000 by 2030, the chance of owning their own home isnt likely to improve any time soon. Mortgage lenders, however are trying to address this problem with a new ‘intergenerational mortgage’. This gives the older generation the opportunity to help out younger family members by passing on their homes and mortgages to the younger generation when they die, or before.
The intergenerational mortgage can be whatever you want it to be. It can be arranged on a repayment or interest-only basis, with a fixed, variable, discounted, tracker or capped interest rate.
A person in their 60’s, who would have paid an average of £12,704 for their first home in the 1970’s, will have seen their investment rise to £292,000 this year with an annual growth rate of 8% according to the Office of National Statistics. One of the benefits of taking out an intergenerational mortgage is that it would help cut the amount paid in inheritance tax, which is charged at 40% on the value of estates over the £285,000.
However, Ray Boulger, senior technical manager at mortgage adviser John Charcol, believes that it is unlikely to be taken up by many people. “Most people want to pay off their mortgage before they retire,” he said. “Keeping a mortgage into retirement leaves you financially restricted.”
He added that anyone thinking of using the intergenerational mortgage as an inheritance tax-saving device should seek professional tax advice.
The Council of Mortgage Lenders (CML) said the mortgage gave homeowners more choice, but warned that children inheriting a mortgage should be aware of its financial implications. CML spokesman Christopher Dean said “It gives consumers more choice. It might be an advantage to people on a low wage entering home ownership, where their mortgage may take longer to pay off. It means parents can pay off some of the mortgage and leave some to the children.”
On the surface, intergenerational mortgages do seem like the ideal solution for young people just starting out, and not getting stung heavily by inheritance tax is always going to look like a good idea. What does remain to be seen is whether culturally the concept of an intergenerational mortgage has appeal for grandparents, parents and grandchildren. We guess that only time will tell. . .
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