By Ashley Pearson, Head of Intermediaries at The Loughborough Building Society
The UK mortgage market has undergone significant change over the last few decades, with shifting social dynamics, high and rising house prices and stagnant wages all playing a major role in the changing mortgage landscape.
With the average UK home costing 8.8 times the average earnings last year, according to House Buyer Bureau research, many would-be homeowners are also struggling to save for a deposit to buy their first home. The impact of this has been a change in the average profile of the UK mortgage.
In recent years, there has been a significant amount of emphasis on intergenerational lending and the Bank of Mum and Dad, much of which has focused on the uptick in the growth of gifted deposits and sizeable loans to help younger generations buy their first home.
However, recent economic challenges have seen a new type of intergenerational borrowing begin to emerge, with more parents joining forces with their children to buy a home that they also own, or indeed, live in, alongside their children.
We’re often asked by brokers about how this type of mortgage works in practice, particularly given the age differences between parents and their children. In some cases, this generational gap can be anything up to 35 or 40 years.
Many of these questions specifically relate to how affordability is assessed, given the fact that the parents are often in, or approaching, retirement age, but may have more income or wealth than their children.
While each application is assessed on its own merit, as a general rule, we would typically assess affordability on the youngest person’s income, provided we do not need to include the older person’s income to secure the mortgage.
For example, we recently received an application from a mother and father aged 85 and 84 respectively who were looking to remortgage a property. Their 55-year-old daughter lived with them, and they decided they wanted to include her in the ownership of the house, so the property was remortgaged in all their names.
However, only the daughter’s income was used for affordability purposes on the mortgage as it was enough to satisfy lending requirements. In this situation, the parents were able to remortgage the property as required and remain living in it with their daughter, who is now one of three legal joint owners.
There was also a case where parents wanted to buy a bigger house with their son and daughter and their part of the deal was to finance the deposit. In this case, the income of the children was used for affordability purposes, but the parents were also named on the mortgage. This allowed them to buy a bigger house to live in together, so that the children can care for their parents in the future.
It’s also worth noting, however, that it’s not just applications from parents and their children where a significant gap in age can occur. We recently had an application from a husband aged 77 and his wife, aged 37, who were looking to remortgage away from their current lender.
As the affordability fitted with just the wife’s income, we could consider the loan to value (LTV) and term of the younger applicant and not the older applicant. However, the husband was still named on the mortgage and remained a joint owner of the home.
Given the affordability challenges facing many borrowers over the last few years, brokers are likely to see more applications from people clubbing together to buy a home. Some of the cases may well include applicants over the age of 50 or with a large gap in age between the borrowers.
Speaking to a flexible lender who is familiar with handling such cases can help to ensure the application is successful.
It can also help brokers gain an understanding of mortgage applications with large age gaps and ensure their clients get the financing they need to buy a home.