The mortgage that outlives you

Today a media storm erupted surrounding Kent Reliance building society's new inter-generational mortgage, a loan that can be passed on to children after death.

"The concept is very simple. A person can pay their mortgage on an interest-only basis for their lifetime. When they die the mortgage and the property pass to the 'beneficiary' who can continue the mortgage or pay it off," the building society explains.

"The mortgage works like any mortgage and is subject to the same principles of ability to repay, affordability and on-going ability to repay through retirement.

"The loan can be any of the mortgage range but it may be that the borrower will take a long-term fix - we currently offer a long-term fix at 5.15 per cent for 25 years."

Of course, the idea of a never-ending mortgage might not appeal to everyone - and as such Kent Reliance has procedures in place so that when the mortgage is passed on, the 'beneficiary' can choose what to do.

"There is no obligation to accept the mortgage," Kent Reliance explained.

People can, therefore, either sell the home, re-mortgage, or pay off the debt by other means if they do not want to keep paying interest on the loan once it is passed on.

Of course, the building society also has the ability to reject the 'beneficiary' of its inter-generational mortgage, if they do not meet the lender's borrowing criteria. In this case the person taking on the loan has to settle it - probably by selling the property.

But provided people are willing to keep paying the interest on the mortgage, and meet the building society's lending criteria, the mortgage could potentially keep going until the end of time.

But there are question-marks over the value of this product.

Whether it is better to keep paying-off a loan until you die rather than simply access the cash using an equity release product such as a lifetime mortgage or a home reversion scheme is questionable.

With both of these products the person or people inheriting a property can pay off the debt, or re-mortgage, when the homeowner dies - and interest payments are not due during the lifetime of the original homeowner.

Additionally, if people want to pass on their property after death, they can simply hand it to the intended beneficiary in their lifetime rather than bequeath it in a will, leaving them free to arrange a mortgage of their own.

However, with the popularity of this product high in countries such as Japan and Switzerland there is sure to be interest in Kent Reliance's new offering.

For more information see www.krbs.co.uk XXX