Parents likely to double financial support to children if repayment is guaranteed
According to research by Generation Home, which surveyed 1,003 parents aged 33 and over, found that parents would part with an average £13,088 to support their children, but this rose to £22,093 if the money was guaranteed to be structured as a loan.
The survey found that one in 10 would give £10,000 to £50,000 but this doubled to one in five if they knew it was going to be repaid.
Over two third of parents, 67 per cent, said they would help financially and 26 per cent said they were happy to gift money without an agreement on how it was spent.
Just under half of parents, 46 per cent, said they would give money to contribute to a child’s first home, which compares to 10 per cent for higher education, wedding or a car.
However, over a third, 37 per cent, said they wanted to give financial support but were unable to do so, citing increased pressure from everyday bills and the cost of living crisis.
Sophia Guy-White (pictured), co-founder of Generation Home, said: “With so many factors stacked against first-time buyers amid the backdrop of this year’s even tougher financial climate, it’s easy to think the doors of the property market are completely slammed shut.”
She said Generation Home was committed to helping parents who wanted to financially support their children but feared uncertainty of gifting large sums towards a deposit.
Guy-White explained that its Generation Home Agreement transformed deposit gifters into deposit boosters through an interest-free loan.
She said it removed “awkward conversations” around financial agreements and would help more young people get on the property ladder, and everyone in the transaction would be protected.
Cost of living crisis will increase dependence on Bank of Mum and Dad – Saga Equity Release
A quarter of parents with adult children said they would be supporting them in the coming months, according to a survey of 2,000 people by Saga Equity Release.
Up from 20 per cent two years ago, the current proportion is expected to stay stable over the coming year.
Cost of living crisis has greater impact than Covid
Around 64 per cent of parents said they expected the cost of living crisis to have a greater impact on their children’s finances than the pandemic, pointing to rising bills, low savings, and increasing rent and mortgage payments.
The report adds that a quarter of respondents expect to support their children more now that they did during the pandemic.
The pandemic and the cost of living crisis has led to many over-50s reevaluating their inheritance plans, Saga said.
Saga reports that under a quarter, 24 per cent, of respondents said the cost of living crisis had made them reconsider their plans to share their estate with family.
Around 15 per cent said the cost of living crisis could lead them to gift money, compared to the 12 per cent who gifted money during the pandemic. The average gift is nine per cent of their estate.
Five per cent of over-50s were considering equity release, which rose to 13 per cent for those aged over 80.
The amount drawn down by equity release customers has also increased by 12 per cent since 2020.
Alex Edmans, head of retirement at Saga Personal Finance, said: “The last two years have been unparalleled in terms of the impact on our finances, with further challenges on the horizon.
“The Bank of Mum and Dad was a critical lifeline for many people during the Covid-19 pandemic, and our research points to a growing dependence on family support as inflation continues.”
He added: “As dipping into savings or investments becomes less realistic in the cost-of-living crisis, more parents are now considering different approaches to inheritance – be that fast-forwarding plans, gifting sums of money or releasing equity from their homes. We could see permanent changes to attitudes towards inheritance as a result.”
Livemore restructures fees and ranges to enable double sells
The lender is introducing a structure with four levels of criteria, instead of the standard two-tier system that divides products into standard and complex categories.
The ‘Livemore 1, 2, 3 and 4’ range has options which can be matched to client needs, including those with a more complex credit profile, those looking to consolidate debts, remortgage or purchase a property of non-standard construction.
The range still concentrates on retirement interest-only (RIO) and term interest-only (TIO) mortgage products with maximum loan to values of between 60 per cent and 75 per cent.
Changes to fee structure
The structure of the fees and incentives is also changing. There is now a fee paid range, and a fee assisted range, with no product fee and free valuation across all products. Loan sizes start at £10,000 and go up to £1.5m.
The lender is also trialling a lower price point on its 10-year fixed rates making them the lender’s cheapest products starting at 3.7 per cent for a 10-year Livemore 1 TIO.
Alison Pallett (pictured), managing director of sales at Livemore, told Mortgage Solutions: “Over the last two years we’ve found that there are a number of older people with credit and we want to be able to help them restructure their debt and sort them out with a longer term mortgage. By having more product tears available we can reach and help more people.
“Our competitive 10-year product that’s cheaper than the five year to show people the art of the possibility when it comes to the long term fixes.
“This goes across all our products and with rising inflation there’s never been a better time to get a long-term fix.”
Opportunity for brokers to make a double deal
The dual purpose of the new structure presents greater opportunity for brokers to write more business as it also loosens up the market for first-time buyers (FTBs) with generous older relatives. This is designed to address the growing gap in the market.
Capital raised by the more seasoned family members looking to remortgage can be given to family members to increase their deposit – the larger the deposit, the more options that are available to FTBs.
Pallett added: “The new structure will help brokers write more business for more customers.
“With the increasing demand on the bank of mum and dad, brokers will be able to write two mortgages, one for the parents and one for the FTBs. With this type of product your grandparents can gift their grandkids by capital raising on their mortgage, and give that to the FTBs so it’s a really important product that services the FTB and later life sectors simultaneously.
“We find that there’s a disconnect in the market – there’s high consumer demand for these products and we want to get as much messaging out there to connect brokers.
She added: “We manually underwrite all applications, with brokers and their clients having access to underwriters as each case progresses. We assess a case on its merits, not the age of borrower, and take account of all income, pension and assets, not just salary.”
Borrowers seek to remortgage after six months to avoid further rate rises
The jump in these searches compared to Janaury suggests rises in the Bank of England’s base rate to curb inflation could be prompting borrowers to lock into low fixed-rate deals sooner, the club said.
The data comes from L&G’s Smartrcriteria tool, which tracks product searches from over 8,000 advisers, shedding light on mortgage borrower trends.
February’s data showed that the buy-to-let market was still seeing growing demand despite rising inflation, with searches for first-time landlords rising by 23 per cent month-on-month. Searches for those with corporate lets also grew by 28 per cent.
However, with house prices shooting up to record highs, the bank of mum and dad is becoming increasingly vital for borrowers, as searches for those with gifted equity climbed by 119 per cent. Searches from landlords with gifted equity followed this trend, climbing by 15 per cent.
Searches by advisers for borrowers with gifted deposits similarly increased by six per cent, suggesting that the cost-of-living squeeze has resulted in first-time buyers needing a bigger deposit for completion.
L&G’s data also suggests that families could be looking to alternative options to either minimise their monthly outgoings or free up cash to help their loved ones with a deposit as house prices rise and the Help to Buy scheme enters its final year. The club suggested this was indicated by a 33 per cent rise in searches for interest-only mortgages.
Kevin Roberts, director at L&G Mortgage Club (pictured) said: “The cost-of-living squeeze and rising interest rates are clearly driving borrowers to remortgage and lock into low fixed-rate products that are still available on the market.
“Others are exploring alternative means of managing their finances, perhaps by taking out interest-only mortgages. Whether borrowers are looking for alternative solutions or simply want to lock into a fixed-rate mortgage for the future to keep their monthly repayments low while ensuring they have a mortgage that continues to meet their needs.
“As advisers seek to support many of their clients to find new mortgages, technology remains key to processing these requests quickly and efficiently. Research tools that consider criteria, affordability, and products are useful to intermediaries.”
FTB numbers double but deposit and affordability concerns remain
According to Barclays first-time buyer index, which combines the lender’s data with consumer research from 2,000 potential or existing first-time buyers, these borrowers in 2021 paid an average £281,9000 to get on the property ladder.
This is slightly down from the average £294,5000 in the prior year. However, it is a rise from the 2019 average of £249,7000.
The average deposit paid by solo first-time buyers and joint buyers came to £61,100 and £61,000, both down from the previous year’s figures of £71,400 and £63,800 respectively.
Potential homeownership barriers
Just over a third said that saving for a deposit was the greatest obstacle to home ownership, which was followed by high house prices, lack of options in their desired area, inability to find an appealing property and lack of understanding on how to apply for a mortgage.
Around 62 per cent said that personal savings was their main method of raising a deposit, which was followed by a government scheme like Help to Buy with 24 per cent and 17 per cent citing inheritance. A gift from parents emerged at 16 per cent and investing came last at 13 per cent.
The average income for both solo first-time buyers and joint first-time buyers have risen to £50,800 and £70,600 respectively. This is up from £45,900 for solo first-time buyers and £63,800 for joint first-time buyers in 2019.
Barclays said that the average first-time buyer starts saving at 24 and the average age of completion is 32, which the lender says has remained static for the past three years.
However, over half of existing or potential first-time buyers said they didn’t know how to go about buying their first property.
Many were not aware of extra fees with 39 per cent saying that they were unaware of solicitor fees, and 54 per cent said they didn’t know they might need to pay stamp duty.
Claire Macphail, mortgage expert at Barclays, said it was “encouraging” that more first-time buyers had been able to get on the property ladder in 2021 but it was “worrying” that many believed they would never afford their first property.
She added: “Our index points to the importance of first-time buyers being supported by family so it’s essential for lenders to innovate to provide new ways in which first time buyers can get a head start.”
How the Bank of Mum and Dad could fill the Help to Buy gap – Guy-White
The scheme has been popular, with a 43 per cent increase in the number of homes bought using it last year, its closure in March 2023 will cause trepidation for some.
Help to Buy intended to fix systemic issues facing first-time buyers: rising costs, limited housing supply, and the difficulty of saving for a deposit. Restricting the scheme to new builds intended to address the supply issue by incentivising production.
But despite contributing to over 1.4 million houses being built since 2013, it has inadvertently caused other issues, primarily inflating prices for new-build properties. The average price of a Help to Buy property has risen 60 per cent since the scheme’s 2013 launch, outpacing the overall market rise of 49 per cent.
A recent report found that whilst the scheme was productive outside major cities, demand hotspots like London saw new build prices inflated beyond the value of the subsidy.
Amidst rising house prices, the valuation of the government’s stake increases. This can be problematised by relatively high interest rates of 1.75 per cent following the end of the five-year grace period – rising by RPI + one per cent each subsequent year.
Combined with increasing inflation and the ‘cladding crisis’, homeowners can become ‘mortgage prisoners’ – making increasing repayments without making a dent in the government’s stake.
Increasing role of family lending but more flexibility needed
Despite these flaws, there is no denying that Help to Buy has succeeded in getting people into homes, and a key reason for its popularity was reducing the deposit burden on first-time buyers. With the government no longer providing equity loans, many will look elsewhere to plug the gap in their deposit. Increasingly, this means applying to the ‘Bank of Mum and Dad’, or BOMAD.
In 2021, BOMAD assisted nearly 50 per cent of first-time buyer purchases contributing £9.8bn, which is three times the government’s equity loans. In 2020 this was around £3bn.
In fact, the total value of equity loans under Help to Buy since its 2013 inception totals £20bn, while BOMAD has contributed £54bn over the last 10 years.
Most family lending is informal, taking the form of gifted deposits. Formalising it can encourage intergenerational wealth transfers. Our research has found that parents are willing to increase contributions by two to three times if they have certainty of repayment. A formal ‘deposit loan’ can help children in the short term, potentially allowing parents to benefit from their “investment” while having certainty of repayment.
Of course, not all families are lucky enough to have large cash lump sums. Some parents might be able to combine their salaries with that of their children, to boost their borrowing power.
With family already the UK’s ninth biggest lender, the industry must provide products, advice, and services that recognise its importance. No need to be restricted to new builds, or properties under £600,000. The key is flexibility and innovation, formalising age-old arrangements beyond a one-size-fits-all approach.
First-time buyer searches continue to rise near year-end
According to data from Legal and General Mortgage Club’s SmartrCriteria tool, first-time buyer product searches were the third most searched criteria point by advisers in October.
In November first-time buyer searches increased by eight per cent on the prior month.
Searches for gifted equity rose by 38 per cent between October and November, which Legal and General Mortgage Club said indicated that the Bank of Mum and Dad continued to play a pivotal role in first-time buyer purchases.
Overall product searches were up three per cent in November, which suggested the stamp duty holiday did not dampen market activity.
SmartrCriteria data also showed that demand for lenders considering credit-impaired customers fell month-on-month. Missed mortgage repayment searches fell by 10 per cent and customers with debt management plans were nine per cent lower.
Data also showed an increase in searches for portfolio landlords and ex-pat borrowers.
Clare Beardmore, head of broker and propositions at Legal and General Mortgage Club, said it was “promising” to see first-time buyers continue to support demand in the housing market, which she said had remained buoyant despite the stamp duty holiday ending.
She added there were “positive signs” that borrowers were rebuilding their finances as credit impaired searches were falling.
Beardmore said: “Going forward, advisers have an important role to play in helping them find products that meet their unique needs, and the role of technology in this task cannot be understated.
“Automating processes, such as affordability calculations, and other administrative tasks, will create that seamless, customer-led journey, which we are all keen to secure. It’s vital that we sustain the momentum of the past year and ensure that advisers have the right tools in place to respond to the evolving expectations of customers.”
Generation Home added to L&G panel
Generation Home launched in October 2020, and offers a range of products which tap into the support on offer from family members in order to avoid affordability problems, as well as support borrowers who struggle to build a deposit.
The lender tracks monthly contributions from the primary owners and their supportive family members, which are then reflected in individual home equity stakes. The idea is that everyone can then see how much they have paid, and how much they therefore own in the property, in real time.
Danny Belton (pictured), head of lender relationships at Legal and General Mortgage Club, said with house price growth outstripping increases in earnings, first-time buyers needed “innovative mortgage options” that remove the barriers to ownership.
He continued: “Generation Home’s proposition is therefore well timed and likely to support many people to press ahead with their dreams of owning a home of their own. Because this is such a meaningful step forward in the journey to developing innovative lending solutions for future generations, I have every confidence that this will be a welcomed addition by our adviser community.
William Rice, CEO at Generation Home, added: “We believe that the mortgage advice community will play a critical role in educating future Generation Home customers about the benefits of our proposition. This is where our partnership with Legal and General Mortgage Club is key to our success. As the UK’s leading club, we’re gaining access to a broad and engaged community of brokers, that we look forward to working with.”
The lender spoke last year of its aspiration to have whole of market broker coverage in 2022.
Nearly two thirds of Brits want to upsize just for Christmas
According to research from mortgage broker First Mortgages, which surveyed 1,001 people, 70 per cent of those surveyed invite people over for Christmas, with an average of five extra people visiting to celebrate Christmas festivities in normal circumstances.
This means that space can be constrained, with 26 per cent having to move chairs from other rooms, 19 per cent needing to buy more furniture, 17 per cent splitting people into different rooms and 15 per cent having people sit on the floor or outside.
David McGrail, compliance director at First Mortgage, said that whilst it could be annoying to accommodate a family gathering if people’s homes were smaller, homes were “year-round and not just at Christmas”.
He said: “If you want to upsize you should plan carefully and make sure where you are moving to is going to be in budget and somewhere that you can call home all year round and not just a house fit for parties.”
The research noted that around a quarter of Brits wanted to upsize their homes each year.
This could represent an opportunity for the mortgage market in terms of second charges, bridging finance, renovation and refurbishment mortgages.
First-time buyers looking for cash for Christmas
The research found that nearly two thirds, 65 per cent, would be asking for money instead of gifts this year.
Over half of parents, 51 per cent, said that they would be willing to give money towards a deposit this Christmas.
The research continued that the average first-time buyer would ask family for £2,900 toward a first home.
With average deposits standing at £12,600 for a 95 per cent loan to value mortgage, it could take four Christmases to save for their first house.
McGrail said: “Christmas is a time of giving and showing our families love. If I were an aspiring first-time buyer in today’s market, I would much rather be given the equivalent of what is spent on presents as cash to save.
“For a first-time buyer, any extra cash they can save and put towards a deposit can really help them when it comes to getting their first property. Having a slightly larger deposit can often mean interest rates and the amount of time you are borrowing for are lower and shorter, also saving them money.”
Most parents expect to help children buy a home ‒ BSA
Research from the Building Societies Association (BSA), found that more than half of those surveyed, 53 per cent, believe older family members should offer financial help to younger loved ones to help them buy a home if they can. This compared to just 28 per cent who don’t think they should.
Just under half, 49 per cent, of parents said they expected to leave a bequest to younger family when they passed away.
While many parents anticipate helping their children get onto the ladder, the children themselves are not expecting to receive that help. Less than a third, 29 per cent, of would-be first-time buyers said they expected financial help from a parent in purchasing a home.
The study also revealed a generational divide, as parents under the age of 60 were less inclined to provide financial support to their younger loved ones than parents aged over 60. The BSA suggested this was likely down to the higher value of assets held by older generations.
The BSA research found that almost half of those surveyed, 45 per cent, expect house prices to continue to rise next year, with just 13 per cent expecting a fall, making putting together a deposit an even bigger challenge for potential homebuyers.
It also revealed a real drop in confidence in the housing market, with just 21 per cent saying now is a good time to buy property, down from 26 per cent three months a go. Almost one in three think that now is not a good time to purchase property.
Paul Broadhead (pictured), head of mortgage housing policy at the BSA, said that with house prices rising faster than both inflation and wage growth, it was no surprise that building a deposit remained the most testing aspect of getting onto the property ladder.
He continued: “But it’s clear that many families are more willing to share their wealth and give financial help than the younger generation appreciate.
“Perhaps families should use the festive period to talk candidly to each other about their future plans and aspirations and how best to use their inter-generational wealth. It could be the best present under the tree for all.”