With property prices on their way up to the pre-crash peak and the continued shortage of mortgage availability, the property investment company feel lenders should alter their terms to take this into account.
They suggest that mortgage lenders should see the extended profits of 30, 35, and 40 year terms like they did when releasing 20, 25 and 30 year terms. While some countries, including Australia just last year, have introduced multi generation mortgages to make rising property prices more affordable, the UK seems to shy away from providing the asset security to the lender over longer timescales.
According to research, the effects of recession, property prices and the cost of care for old and young have combined to revive the practice of several generations living under the same roof. Almost 36 million people in Britain now have experience of living as adults in the same home as another generation of their family. For almost three million of them, it is an arrangement which lasted as long as 10 years. It suggests that multi-generational households are becoming the norm. (source: Aviva August 2012).
Charles Brittain, Business Development Director at Invest Connect comments:
“Like the US, the UK has seen a big increase in multi-generational households sometimes with three or more generations living under the same roof. This has mainly been driven by economic factors – the squeeze on incomes and jobs, the cost of housing and the pressures of both childcare and eldercare. We are likely to see more households sharing space, costs and care. It can make economic sense and have social benefits: from reducing loneliness and sharing the caring to increasing understanding between generations. But this is not what all families want and choice is what this country stands for.
Unfortunately, the mortgage lenders do not seem to want to capitalise on this opportunity to lend in a more prosperous way for the lender and affordable way for the mortgagee. At present, the latest visible option on offer is the Government’s taxpayer-backed security which is only available on new build property and still makes mortgages un affordable for some due to the premium on new build property.
While this is great to provide an equity return for the taxpayer over time, it is interest free for five years. After that five year point, the return to the tax payer is as little as 1.75%. So effectively this is boosting jobs in developing and providing an option to those wishing to buy for the first time, but not actually boosting the whole housing market, as it is only available on new build homes. So what about the rest of the housing market?
It is squarely down to the mortgage lenders to make more mortgages available, that suit today’s market needs. This means affordable and accessible to all and on all types of property. Stimulation of the new build market is important to ease the housing shortage and the Government equity deposit loans are an encouraging move. Stimulation of people buying in general is what is needed for the banks and the housing market.
Affordability is crucial for enabling those stuck living with parents to buy for the first time and those wishing to move or upgrade their home. Lowering interest rates is not an option as they are low at present, nor can exposing the bank to more capital risk through higher loan to values. So extending the terms is the most practical solution. The lenders benefit from longer interest producing periods and the buyers enjoy lower repayments, leaving enough from earnings for further consumer spending to help boost the wider economy.
A 20 year old gaining a 40 year mortgage can still see the term finish within in their working life and would either have monthly payments reduced by approximately £150 a month or be able to afford in the region of £30,000 more lending."
