Boris goes off piste again on 50-year mortgages - David Alexander

In his first speech to the Conservative Party conference as Prime Minister in 1991, John Major famously declared that he wanted “to see wealth cascading down the generations. We do not see each generation starting out anew, with the past cut off and the future ignored.”
David Alexander is the chief executive officer of DJ Alexander ScotlandDavid Alexander is the chief executive officer of DJ Alexander Scotland
David Alexander is the chief executive officer of DJ Alexander Scotland

For most people at that time, “wealth” meant the family home although his predecessor, Mrs Thatcher, had previously, through flotation of shares in publicly-owned companies, given increasing numbers of households the chance to build up more liquid capital assets as well.

Twenty-three years later, in 2014, the then Chancellor, George Osborne, further boosted generational wealth by taking pension pots out of inheritance tax (IHT). This meant that when someone died the remainder of his or her pension fund that was bequeathed (to adult children, for example) was no longer potentially liable to an IHT rate of 40 per cent.

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Now the current Prime Minister, Boris Johnson, has declared that he wants to extend the concept of generational wealth by making it possible for banks and building societies to offer mortgages extending to 50 years or even longer which could be passed on by the original mortgagees to their successor children.

For some reason, Mr Johnson chose a break in last week’s NATO conference in Madrid (where, understandably, the main topic of conversation was Ukraine) to make this announcement on home policy and like a lot of his proposals it seems to be big on rhetoric but somewhat short on detail. What we got from him was a comment that the government “wants to find all sorts of creative ways to help people into ownership”.

Hmm. Shades of “build back better” without knowing what exactly it’s supposed to mean.

The concept of passing on a mortgage through not just two but several generations is not unique in the world but would it be relevant to Britain?

The Prime Minister may already be behind the times as according to the Building Societies Association, latest figures show that 37pc of first-time buyers took out mortgages of between 30 and 35 years, with only 10pc opting for less than 20 years. Therefore who is to say that mortgages of 40 years or more may not become common for commercial or social reasons (i.e. people becoming first-time buyers later in life and not retiring until around 70) rather than needing a jolt from government?

Most mortgage-payers look forward to the day when their home loan is finally paid off and they become owner-occupiers in the truest sense of the word. Would they be willing to reach retirement still owing money to a bank or building society even if the mortgage is being taken over by a much-loved and financially responsible son or daughter?

And what if the mortgagee had several children and there was competition among the siblings for the mortgage? Seems to me a recipe for family strife.

Take the quite common situation that currently occurs when someone dies and leaves his or her home, free of a mortgage, to be split equally between two, three or more adult children, all of whom probably have different financial circumstances. One of the siblings might be desperate for cash and insists the property is sold straight away; another suggests that they renovate and wait for an opportune selling period (e.g. spring) before putting the property on the market; a third might argue that they should hold onto the property and use it as a letting investment for rental income and capital growth.

Yes, it could all become rather complicated.

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In one area Boris Johnson was specific in that he believes generational mortgages will make it easier for more people to access a home loan.

This indeed may turn out to be so but such a scheme will not in itself lead to the creation of one single extra house or flat. Put simply, the only way housing will become more affordable is, at a time of rising population, to build more units – not just for owner-occupation but for commercial and social rent as well.

David Alexander is managing director of DJ Alexander

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