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Last Updated: Wednesday, 23 August 2006, 10:30 GMT 11:30 UK
Parents to pass on mortgage debt
A pensioner woman
Mortgage debt could carry on into retirement and then beyond
A mortgage which allows parents to leave their homes and home loans to their children has been launched by the Kent Reliance Building Society.

The "Inter-generational mortgage" would allow homeowners to take out an interest-only mortgage - and pass on both repayments and home when they die.

But the beneficiary would be left with a large debt, since only the interest on the loan would be paid off.

Some experts suggest that the mortgage could cut inheritance tax bills.

Inheritance tax is only levied on an estate after all debts have been subtracted.

Therefore, by increasing the level of an estate's debt the amount of money subject to inheritance tax would fall.

You live in a property all your life, paying just the interest but leaving the debt. It strikes me as a little selfish.
Andrew Montlake, Cobalt Capital

However, the beneficiaries would still be left to deal with the mortgage debt, rather than inheriting the home outright.

Carefully vetted

Andrew Montlake, partner at mortgage brokerage firm Cobalt Capital, told BBC News that there were potential pitfalls with passing on mortgage debt between the generations.

"There are real issues of affordability," he said.

"The initial payments may be lower because only interest is being paid, but how are people going to afford these interest payments in retirement?

"You live in a property all your life, paying just the interest but leaving the debt. It strikes me as a little selfish."

In response, a spokeswoman for the Kent Reliance Building Society told BBC News that borrowers would be carefully vetted.

The spokeswoman said the society would review the finances of the borrower and their beneficiaries to ensure that they could meet interest payments over the long term.


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