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First Time Buyers – Is the ‘Bank of Mum and Dad’ the only answer?


Friday, November 16th, 2018

A new independent report published today by the Building Societies Association shows an increasing reliance upon the Bank of Mum and Dad. With the right support this role could grow, without jeopardising the long-term financial wellbeing of older generations.

Northern Ireland’s largest locally owned financial institution, Progressive Building Society, welcomed the new research which recognised the important role that parents currently play and has emphasized the importance of flexibility in supporting young people gain home ownership.

Recommendations from Building on the Bank of Mum and Dad include:

  1. 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.
  2. Clearer communications: breaking through the jargon to explain the options to all generations.
  3. Tackling other barriers: such as the impact of regulations and taxes that limit lending or how property wealth can be put to use.

Almost nine in ten (87%1) 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.

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.

Seventy per cent2 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:

  • 86% of people want to own their own home3, but the financial challenges facing first time buyers explain why many think that they won’t be able to achieve this aspiration2.
  • 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 dual- earning households and those with higher incomes.
  • More than half (59%4) 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.

Quotes:

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.”

Darina Armstrong, Chief Executive of Progressive Building Society commented, “Having funded local home ownership for over 100 years, we know that raising a deposit is one of the biggest hurdles for people who are trying to become home owners. At Progressive we are committed to offering our Members different options and our Family Assist Mortgage is an option to consider if you don’t have a large deposit saved and have a family member who is willing to support you. Rather than gifting a deposit, family members can save money in an account which will be used as security against the mortgage their relative takes out. This report supports research carried out by Progressive that mortgage suppliers need to be flexible and support young people in an ever changing and evolving society.”

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