The whole notion of intergenerational fairness is constantly raised in this country with very good reason, especially when you see the different experiences that are being had when it comes to university fees, work opportunities and home ownership.
It does seem to show that the opportunities available to previous generations are simply not there for the UK’s 20- and 30-somethings and I can fully understand why this might breed resentment.
Take the complexities of home ownership, for instance. We have now reached a point where many would-be first-time owner-occupiers are completely reliant on their parents and grandparents to help get them on the ladder.
A whole sector has grown up to support this, encompassing various means by which a parent or grandparent can help a child or grandchild, be that via the gifting of a deposit, acting as a guarantor, or being willing to put savings away in order to secure the mortgage.
However, while there is a place for this in today’s market, I’ve been much more concerned about those potential owners who cannot access family support.
This is especially in a mortgage environment where lenders are risk-adverse and seem to want an active parent or grandparent participant, rather than providing high loan to value (LTV) mortgages for the individual borrower to access themselves.
Advisers prefer higher LTVs
It would seem, from recent Defaqto research, that advisers feel similarly.
Apparently, 13 lenders now offer inter-generational mortgages – where the parent or grandparent puts down a security deposit – but a number of advisers feel it would be far better for lenders to offer greater numbers of high LTV deals and that coupled with house price stability, this might help more first-time buyers get onto the ladder.
Some might point to the fact that there has been a noticeable upturn in higher LTV mortgage products over the last 12 months in particular. But these still come at a significant price.
Every iteration of our own LTV Tracker has shown that those first-time buyers with a five per cent deposit tend to pay up to 50 per cent more each month for their mortgage than those who can put down 25 per cent.
That makes affordability tight to say the least, and is likely to cut into a significant slice of any take-home pay every month.
It might mean the difference between a first-time borrower being accepted for a mortgage or not, and even while the mortgage price differential between the two has narrowed in recent months, we have seen that house price increases for first-time buyers, actually make the monthly mortgage even more expensive.
Get house in order
What we clearly need is a focus on developing high LTV product access, ensuring that pricing is not so far away from what is on offer for those with 25 per cent deposits.
Clearly, it’s a risk game for many lenders, and at present they are much more inclined to go for what they perceive to be less risky borrowers with larger sums of money to put against their properties. Hence, the move towards mortgages aimed firmly at those who can access family support.
However, there are opportunities to mitigate such risk, to improve high LTV lending supply and to have these competitively priced.
We believe there is a group of potential borrowers on the cusp of being able to purchase, without recourse to their parents, if lenders can get their high LTV house in order.
In that sense, we might be able to move away from such a high dependency on parents or grandparents, and we might finally – from a mortgage sense – be able to talk about the next generation.