New breeds of mortgages for a new generation of buyers

With so many changes in the property market, it is no surprise that the mortgage market has had to evolve along with it.

The traditional mortgage of 25 years has changed, with lenders working to provide modern property buyers with mortgages that better suit their needs in today’s high price market place.

However, the new generation of mortgages are not quite as simple as their historic counterparts. The new breed of loans are being designed to make sure that not only can first time buyers afford to get on the property ladder, factoring in potential assistance from parents or grandparents, but they also allow the property to pay an income, or offset tax bills.

The are many new developments that have burst onto the mortgages market in the past few years, in order to cope with the rising demand for more flexible and varied lending patterns:

Intergenerational loans

More and more families are reliant on the ‘Bank or Mum and Dad’ to get their first step on the property ladder, however an intergenerational mortgage could see a role reversal - Mum and Dad benefitting from their offspring!

This model originated in Sweden, where the soaring prices of property have made it impossible to pay off a mortgage in one lifetime, so mortgages are transferable. The maximum term for a mortgage there is a 100 years.

This is particularly useful in the buy-to-let market, where children may wish to keep a property portfolio as an investment, and can therefore arrange to have the mortgage transferred to them, along with the equity.

Extending the loan

Few people, especially those taking their first steps onto the property ladders, are able to afford to buy a property with a 25-year mortgage today. Many lenders have realised that offering 30, even 35 year mortgages prove people with much more flexibility and make pricey properties much more affordable and within the reach of the average home-buyer.

60% of home buyers are now opting for longer term mortgages, with Halifax, nationwide and Leeds Building Society offering loans of up to 40 years in some cases.01:0

Bank of Grandma and Grandpa

We’ve all heard of the ‘Bank of Mum and Dad’, but many people are now turning to the ‘Bank of Grandma and Grandpa’ and not in the way you may expect…

Whilst many generous grandparents may help out with a deposit taken from savings, there is now another way they can assist struggling grandchildren onto the property ladder by extending their own mortgages!

Lenders have traditionally required mortgages to be paid off in full by the age of 65, however as the nation pushes retirement back, and chooses to work for longer, lenders have pushed bank the upper age limits on mortgages too – with some lenders allowing existing borrowers to extend their loans until their 85th birthday!

Some of the smaller building societies- notably Bath, Cambridge and National Counties – have no upper age limit at all!

Hybrid lending options

Some institutions are working towards the development of hybrid mortgages, which could be for life, where borrowers pay interest when they are young but can draw down money from the equity later in life.

Currently, conventional equity release schemes are fairly inflexible. Once they are set up, it is difficult to repay the loan, or change the arrangement without incurring big penalties. However, a hybrid mortgage, combining interest payments and equity release features, could be the answer for borrowers craving flexibility. 01:06

Loans to support families

Making it easier for families to help each other onto the housing ladder is not new but they normally require access to significant cold, hard cash – and as property prices rise and rise the sums that are required are increasing by the day.

Lenders have reacted to this with the design of family-based mortgages, which provide 100% of the purchase price on the provision that parents ‘lock away’ 10% of the property value in a separate savings account as additional security. The cash earns interest, but can’t be accessed for the three years, assuming that all the payments have been met.