Ruth Davidson: This is how to solve the first-time-buyer crisis

We all know it is tough out there for young people to buy their first home – much tougher than it was even 20 or 25 years ago. But it is worth reminding ourselves of some of the issues first-time buyers face. Firstly, average house prices have grown twice as fast as average wages over the last 25 years. At £294,000 the average home in England now costs more than seven times the median salary. The average deposit for a first-time buyer now tops £60,000. I don’t know many folk with a spare £60,000 kicking around – especially not ones in their twenties. So it’s no surprise that more than half of all first-time buyers now rely on financial help from the bank of mum and dad to pull together a deposit. Even with help, this high barrier to entry continues to change the demographic of homeownership. In 2020, the average first-time buyer was in their late twenties. Today, they are 34. At the other end of the spectrum, it’s a different story. The proportion of over-65s owning their own home has risen to 79 per cent – so maybe it’s time to think differently about the housing and mortgage market. Two potential solutions beginning to find favour are intergenerational and multigenerational mortgages. Common to Japan – but vanishingly rare here – both can help pool resources, increase lending and reduce costs within families. The two concepts may sound similar, but they describe very different products and situations. An intergenerational mortgage is an ultra-long-term loan where different generations of the same family don’t necessarily live in the same house, but the expectation is that, on death, both the property and the outstanding debt pass down the line.In the 1980s, Japan saw a spike in 100-year “three-generation” mortgages, marketed as a product where the “grandfather borrows, the father pays and the grandson finishes” the loan. The housing crash in the 90s diminished the appeal and it is rare to find a lender offering mortgages for 100 years today. But more than half of all Japanese lenders offer 50-year mortgages and the proportion of mortgage-holders with terms spanning between 35 and 50 years has skyrocketed. In 2020, just over 9 per cent of Japanese mortgage applicants opted for one of these ultra-long loans; last year more than 25 per cent of mortgage applications fell in the 35- to 50-year span. The benefits are attractive – lower monthly payments, greater ability to purchase in areas where wages are stagnant, but urban housing costs are high, plus an ability to reduce estate and inheritance taxes. But the system is not without risk – mortgage payments needing to be serviced long into post-retirement and old age, the inability to plan when inheritance transition occurs, the potential need to move the original owner out of the family home and into residential care. There’s also the cultural question of whether passing on debt is considered a gift or a curse. One UK lender now offering ultra-long intergenerational mortgages is Perenna. According to its head of product, proposition and distribution, John Davidson, “the longer-term mortgage idea is very new in the UK, whereas other countries have intergenerational mortgages left as part of people’s estates. “We have a cultural belief that we must pay off all our debt before we die and pass on our property mortgage-free to our children.” Meanwhile, the multigenerational mortgage is a different beast entirely. It’s a form of joint mortgage where different generations pool their resources to buy and live together. Often the property they buy will have a separate annex or granny flat, or there may be more than one building on the same title deed. The surge in this kind of living in the US has prompted a law change in California. From January, homeowners on a single “family lot” will have the right to build a 500 sq ft annex, plus up to two further stand-alone properties (if they have the space) and their planning applications will be fast-tracked. Multigenerational living helps families who might not otherwise be able to afford to buy. It eases the transfer of assets when a parent dies and can massively reduce inheritance taxes. But it can unleash family disputes in the case of divorce, someone wishing to sell their share, or being suddenly unable to service their proportion of the mortgage. And in the UK, the rules around lending severely restrict the range of cross-generational joint mortgages, compared with the products on offer in, say, India or parts of East Asia where extended-family living is commonplace. Here, a maximum of four names are allowed on the mortgage and title deeds. Most lenders have an upper age lending limit, typically 75, which limits the length of time a multigenerational mortgage by the age of the oldest participant. Some lenders only include the highest two or three salaries when calculating borrowing capacity. Intergenerational and multigenerational mortgages may be alien to the UK, but they have proven to be a useful option for families in other parts of the world. With the enormous – and growing – difficulties facing younger workers to get on the housing ladder here, how long before we see at least one of these tools added to the toolbox in the future?