White paper calls for intergenerational mortgages to help first-time buyers

A group of mortgage advisers has proposed a range of reforms to reduce barriers to home ownership for first time buyers.

The newly formed Industry Panel for Financial Advice has worked with advisory network the Sesame Bankhall Group to publish a white paper titled Overcoming the challenges facing UK first-time buyers.

It includes a range of proposals that the industry should work on such as promoting alternatives to Help to Buy and creating intergenerational mortgages.

The report calls for shared ownership stock to be protected through laws that limit the proportion that can be ‘staircased’ up to 100% ownership.
 
It suggests that there should be an industry-wide campaign to raise awareness of Help to Buy alternatives with the scheme ending this year, such as privately backed shared equity schemes.

The document outlines ideas for an overhaul of mortgages.

This includes creating intergenerational mortgages that link equity release or retirement interest-only (RIO) loans with a first-time buyer mortgage for parents do not have the savings to gift a deposit. 

The report said: “By linking equity release or a RIO deal with a first-time buyer mortgage we can create one formal, intergenerational family mortgage where children pay mum and dad’s interest, protect their future inheritance and don’t place any financial burden on their parents. 

“The servicing of the interest payments could be built into the children’s’ affordability assessment.

The report does recognise that there would be advice issues because the mortgage sits across both the residential mortgage market and the equity release sector and calls for the Financial Conduct Authority to address ways of supporting such innovation.

Another suggestion includes split-term mortgages.

These would, for example, see a 95% loan-to-value loan offered over a 35-year term and the remaining 5% offered as a secured or unsecured loan over a five-year term. 

At the end of the first five-years, the borrower would be able to remortgage onto a mainstream home loan hopefully with a larger deposit that they have had more time to save for.

Alex Beavis, of Sesame Bankhall Group,said: “Getting onto the housing ladder has always been difficult but this generation of first-time buyers is facing perhaps the toughest set of challenges yet. 

“The end of Help to Buy, the spiraling cost-of-living, rapidly rising house prices and huge economic uncertainty have combined to create the perfect storm for a generation of aspiring homeowners. For a lot of young people out there, the idea of one day owning their own home has become a pipe dream. We need to work together to create positive change.”