Downing Street is exploring the idea of trying to tackle the housing crisis with extra-long mortgages of up to 50 years that can be passed between generations, allowing more people to build up equity rather than paying rent.
Mortgage experts said the idea could have some benefits, but noted problems including the potential to saddle children with debt and the fact that it would not address the underlying problem of housing supply.
Under the plan, which is being considered by No 10, a longer mortgage term would allow people to borrow larger sums, with the ability to roll over the debt, although it remains unclear what government action would make this happen.
Other housing ideas being considered by Downing Street include trying to free up state land for rapid housing development and exploring whether institutions such as schools could build homes for key workers priced out of local areas.
Boris Johnson, speaking to reporters on his trip to the NATO summit in Madrid this week, confirmed the idea of 50-year mortgages was being considered, saying the government “wants to find all sorts of creative ways to help people to acquire property’.
He said: “Last year we had 400,000 first-time buyers. That’s a great number, we’re starting to turn the tide, but it’s critical for this government and our overall economic story if these numbers continue to be strong.
“We need young people to have the confidence, to have deposits, mortgage packages, so they can get into ownership. If you’re good enough to pay a lot of rent, we need to find ways to help you turn it into a mortgage.
Asked if he was considering subprime mortgages, he said: “Yes, of course.”
The idea of multi-decade mortgages that are passed down between generations is not new and has been introduced in Japan, where 100-year family mortgages have been available for some time.
In the UK, relatively long mortgages are now the most common. According to the Building Societies Association, 37% of first-time buyers took out mortgages for between 30 and 35 years, with only 10% opting for less than 20 years.
The main challenge is the decades-long acceleration of house prices outpacing wage growth. In England, full-time workers now have to spend an average of 9.1 times their annual income to buy a home.
Longer mortgages would mean people could borrow larger sums with the same monthly mortgage payment, potentially opening up many more homes for those who can’t currently buy, who might end up spending less cash for down payment than currently for rent.
What these mortgages would not do, however, is solve the long-term housing shortage.
Graham Taylor, managing director of mortgage firm Hudson Rose, said the idea was complicated. “On the face of it, it seems like a great idea,” he said. “But the problem remains that the loan must be available to all original applicants and also to the children who inherit it. Otherwise, children may risk inheriting a liability they are unable to manage, which, when secured against your home, has disastrous consequences.
Other potential complications include that when a property is passed on to children, inheritance tax may be due and the prospect of people having to maintain payments until retirement.
Rob Gill, managing director of Altura Mortgage Finance, said if the plan did open up the market to more first-time buyers, it would have the effect of keeping property prices artificially high. “It appears that governments around the world will do anything to avoid the alternative of property prices actually falling,” he said.
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