In Focus Collections
First-time buyers and the ‘Bank of Mum and Dad’
Can industry innovation improve the route by which the next generation can access a mortgage?
Robin Fieth Chief executive, The Building Societies Association
The ‘Bank of Mum and Dad’ already provides billions of pounds of help to younger homebuyers. Our new report, published last month, highlights how, with support, this role could grow, without jeopardising the long-term financial wellbeing of older generations. Recommendations from Building on the
Bank of Mum and Dad, an independent report we commissioned, include: lMore products and innovation – lenders expanding provision, offering more flexible product features and looking again at high- loan-to-value-ratio mortgages and how they are underwritten. l Clearer communications – breaking through the jargon to explain the options to all generations. l Tackling other barriers – such as the impact of regulations and taxes that limit lending or how property wealth can be put to use. Nine in 10 building societies expect the
Bank of Mum and Dad to play an increasing role in helping first-time buyers over the next five to 10 years.
Guarantees The Bank of Mum and Dad is not necessarily all about parents and grandparents handing over cash in the form of gifts or loans. Lenders can and do facilitate support between generations by parents providing guarantees or using their property or savings as security for the first-time buyer’s mortgage. Parents can also release money through an
equity-release mortgage or by downsizing. Older generations could use their property more inventively, for example, through ‘downsizing in situ’ and private-equity loans
December 2018
first-time buyers explain why many think they will not be able to achieve this aspiration. In 2017 there were 360,000 first time
buyers. The baseline number of new first- time buyers every year should be nearer 450,000. The ability to buy is increasingly concentrated on dual-earning households and those with higher incomes. More than half (59%) of aspiring first-time
buyers expect the Bank of Mum and Dad to support them onto the housing ladder. Product innovation in this market is
Nine in 10 building societies expect the Bank of Mum and Dad to play an increasing role in helping first-time buyers over the next five to 10 years
could also contribute to the market. However, all of these are expected to be comparatively small relative to the more direct support from family members’ financial resources. So 70% of the public see the difficulties
young people have buying a home of their own as one of the biggest issues the country faces. However, many also believe that both lenders and the government could do more to help. In fact, 86% of people want to own their own home, but the financial challenges facing
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starting to increase the options beyond straight gifting – 59% of building societies will accept a deposit from family members as security; 33% will accept a charge over the property of family members to ease affordability barriers and 10% offer family offset mortgages. Report co-author Bob Pannell said: “Our
young people face huge challenges in buying their first homes. Families instinctively want to help, and it is the job of lenders, regulators, and government to ensure that they have more opportunities to do so in a sustainable way.”
Conclusion Home ownership remains a fundamental ambition for the majority of people. Against the challenging backdrop of high
prices, a woefully inadequate supply of homes and a growing intergenerational divide, new ideas and strong debate are essential. Family help – the so-called ‘Bank of Mum
and Dad’ – is great for those fortunate enough to have this option, but innovations in underwriting could help all potential first-time buyers. CCR
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