A maverick mortgage from Kent

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The Independent Online

There's a new kid on the block. Kent Reliance building society has launched a maverick mortgage deal that has divided opinion among brokers: is it a genuine attempt to help first-time buyers on to the property ladder, or an impractical oddity?

In a nutshell, borrowers on a mainstream interest-only loan are usually offered a term of 25 years -and advised to switch to a repayment deal within two to five years.

But the new Kent Reliance mortgage allows the repayment of capital to be deferred indefinitely; borrowers still paying interest when they die can pass the debt, and the home, on to their children.

Nick Gardner of broker Chase de Vere Mortgage Management claims the loan "fills a genuine gap in the market".

In terms of the monthly repayments, he explains, it may well be the only way in which many people can afford to buy - particularly as home ownership becomes "an increasingly unattainable goal within a generation or two".

He adds: "It will be possible to benefit from a property's capital growth over, say, 40 years - without paying back any capital at all."

At some point, assuming growth in the value of the home, the property could be sold and the original capital sum paid off.

However, making low monthly interest payments will mean borrowers miss out on the benefits of owning the property via a repayment mortgage, such as being able to borrow against it, or releasing equity if it has risen in value.

Melanie Bien of broker Savills Private Finance is downbeat: "The reality is, you will pay considerably more interest over the term of the loan than you would with a shorter or repayment deal - while your family will never own the property outright."

For example, if you had a £200,000 mortgage on a 25-year repayment basis, the capital and interest repayments would cost around £350,754, and at the end of the 25 years you would be debt free.

If you borrowed this amount over 40 years on an interest-only basis, you would make £400,000 in interest payments and still owe the original £200,000 to your lender.

Ms Bien also questions the practicalities of the mortgage.

"Is a 'child' likely to wait until their parents die to get a mortgage?" she asks. "It may be hard getting on the property ladder, but it is ridiculous to assume first-time buyers are prepared to wait that long."

This, she adds, could mean many years of throwing money down the drain in rent.

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