Bank of Mum and Dad has important role in helping first time buyers
The vast majority of building societies, some 87%, expect the Bank of Mum and Dad to play an increasing role in helping first time buyers get on the housing ladder over the next five to 10 years.
The figure from a new report from the Building Societies Association says, however, that this is not necessarily a bad thing, although lenders do need to offer more flexible mortgages.
It points out that 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.
The research found that 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.
The report sets out practical ideas to help more young people to buy at a time when 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 dream.
In 2017 there were 360,000 first time buyers. The baseline number of new first time buyers every year should be nearer 450,000. But the ability to buy is increasingly concentrated on dual-earning households and those with higher incomes.
Some 59% of aspiring first time buyers expect the Bank of Mum and Dad to support them onto the housing ladder and this means more innovation is needed and lenders are being urged to look again at high loan to value ratio mortgages and how they are underwritten.
It also points out that product innovation in this market is starting to increase the options beyond straight gifting. For example, 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.
‘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,’ said report co-author Bob Pannell.
According to Robin Fieth, BSA chief executive, 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,’ he explained.
‘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,’ he added.