First-time buyers - is the ‘Bank of Mum and Dad’ the only answer?
The Bank of Mum and Dad already provides billions of pounds of help to younger homebuyers. A new report published today highlights how with the right 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 commissioned by the Building Societies Association, include:
- More 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.
- Clearer communications: breaking through the jargon to explain the options to all generations.
- 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 ten (87%) building societies expect the ‘Bank of Mum and Dad’ to play an increasing role in helping first-time buyers over the next 5-10 years.
But the ‘Bank of Mum and Dad’ isn’t 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 e.g. through ‘downsizing in situ’ and private equity loans 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.
Seventy per cent 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.
The aim of Building on the Bank of Mum and Dad is to generate practical ideas to help more young people to buy. Suggestions that could improve the opportunities for people who have access to the Bank of Mum and Dad, as well as those who don’t.
Building on the Bank of Mum and Dad finds that 86% of people want to own their own home, but the financial challenges facing first time buyers explain why many think that they won’t 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 dualearning 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 starting to increase the options beyond straight gifting e.g. 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’s the job of lenders, regulators and government to ensure that they have more opportunities to do so in a sustainable way.”
Robin Fieth, BSA Chief Executive said: “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.”