Senior mortgage market figures have called for a shift in lending practices to help address the UK’s worsening housing affordability crisis, including embracing intergenerational loans and extending mortgage terms well into retirement.

The comments were made during a roundtable on the future of the mortgage market hosted by communications consultancy MRM, where panellists warned that traditional lending models were out of step with current and future economic realities.

Among the more radical proposals discussed was the introduction of Japanese-style intergenerational mortgages – ultra-long-term home loans that extend beyond the borrower’s lifetime and are repaid by their heirs.

Such mortgages, which can span 50 years or more, allow repayment to be stretched over a longer period, significantly reducing monthly outgoings. The model assumes that the remaining mortgage debt will be inherited along with the property, offering an alternative route onto the housing ladder for younger generations.

John Davison, head of product, proposition and distribution at Perenna, said the idea, while novel in the UK, is well established elsewhere. “The longer-term mortgage idea is very new in the UK, whereas other countries have intergenerational mortgages left as part of people’s estates,” he said.

Davison added that cultural attitudes in Britain may need to evolve to support such innovation. “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.”

The affordability challenge facing prospective homeowners has been starkly illustrated by recent figures from the Office for National Statistics, which show that the average home in England now costs almost eight times the average salary – up from four times in 2000.

PRAGMATISM REQUIRED

Claire Cherrington, director of PMS and Bankhall at Sesame Bankhall Group, argued that a more pragmatic approach to lending in later life could prove beneficial for some borrowers, especially those who reach retirement without having built up housing equity.

“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,” she said. “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.”

Cherrington also called for an increase in the upper age limits on mortgage terms, allowing some loans to be repaid from a borrower’s estate. “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,” she said.

At present, most mainstream lenders enforce age limits between 75 and 80 by which time the mortgage must be repaid in full, although many allow borrowers to carry the loan into retirement.

BARRIERS

The roundtable also considered the regulatory and structural barriers that currently stand in the way of such innovation. Cherrington noted: “There are, however, still constraints in current regulations that prevent us from thinking differently about how to tackle some of those problems.”

Tanya Elmaz, director of intermediary sales at specialist lender Together, echoed the call for lenders to evolve in response to a changing demographic landscape. With the state pension age set to rise to 68 by 2044 – and possibly to 71 for those born after April 1970 – she said that lenders would have no choice but to accommodate longer working lives.

“We already have slightly longer terms for our residential mortgages, but we’ve got an aging 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,” she said. “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.”

The consensus among the participants was clear: new approaches to mortgage structuring will be needed to reflect the economic realities of modern Britain, and innovation in lending into retirement and across generations could prove essential to improving access to home ownership.