- Financial planning
- 3 minute read
The Building Societies Association (BSA) have recently published a raft of recommendations as to how the mortgage industry can support the Bank of Mum and Dad in their endeavours to help first-time buyers onto the property ladder. They have called for more innovative products to be created to enable parents and grandparents to loan or gift money to family members who are would-be home owners. The BSA also wants building societies to provide clearer communication to help explain all the options, and it wants regulatory and tax barriers to be broken down.
The BSA's report recognises the contributions of the Bank of Mum and Dad to date, highlighting the billions of pounds that have been gifted and lent to help younger homebuyers climb onto the housing ladder. They also confirmed that 90% of all building societies expect this form of financing to play an increasing role in helping first-time buyers over the next five to ten years. Their priority now is to help create an environment whereby the financial wellbeing of the older generation is not put at jeopardy due to their generosity in helping younger family members achieve their housing objectives.
The report also highlighted how the Bank of Mum and Dad wasn’t just about family members handing over cash in the form of gifts and loans – many customers wanted support between generations through guarantees or using their property or savings as security. Indeed, it also identified Equity Release or downsizing from larger properties as ways to support the younger generation.
Robin Fieth, Chief Executive of the BSA 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."
Among its findings the report discovered:
- 86% of people wanted to own their own home, but the financial challenges facing first-time buyers meant many thought they would never achieve this aspiration.
- In 2017 there were 360,000 first time buyers – but the minimum should be nearer 450,000. The ability to buy was increasingly concentrated on dual-earning households and those with higher incomes.
- More than half of aspiring first-time buyers expected the Bank of Mum and Dad to support them onto the housing ladder.
Bob Pannell, co-author of the report, 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."
The recommendations have been welcomed by the Melton Building Society and it highlighted one of its own products which could support families in this situation. Martin Reason, chief executive of the Melton said: "In today’s challenging housing market flexibility in underwriting is essential to help first time buyers with affordability and deposits by harnessing the power of the family’s financial situation.
For example, our Family Assist self-build mortgage allows parents to provide the deposit and have it returned on completion of the build, allowing younger borrowers the opportunity to build their own property."
Within our Mortgage Advice Service we often deal with clients for whom the Bank of Mum and Dad is an integral part of the home-buying process. This can involve a first time buyer receiving a gift from a family member alongside arranging a mortgage, or the donor themselves looking to raise a mortgage against their own property in order to gift the sum to their loved one. With rises predicted to both property prices and the cost of renting, this appears to be a subject that is set to remain in play for the foreseeable future.
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For more information please contact the Mortgage Advice Service.