Why ‘Bomad’ is not sustainable for first-time buyers: Stonebridge

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Generous parents, who give money to their children to help them afford their first property, in turn prop up house price

For an industry obsessed with acronyms, I am surprised that Bomad has not entered the parlance of financial services much sooner.

Bomad stands for the Bank of Mum and Dad, which recent research from L&G suggests is now the ninth-biggest lender in the country, providing an estimated £6.5bn each year.

Mortgage advisers have observed for years the growing reliance of many homebuyers – particularly first-timers – on financial help from older generations to get onto or move up the property ladder. Indeed, a whole ‘industry’ has sprung up around the help given by Bomad.

But why is it that Bomad is increasingly called upon to help borrowers? Yes, it is partly due to high house prices putting purchases out of reach. But it is also because lenders have shied away from offering high loan-to-value mortgages over the years, which has led to the introduction of specific products that cater for the inclusion of parents.

In some ways it is a downward spiral. One can argue that parents who provide money to their children in this way in turn prop up house prices, ultimately putting them out of reach of the kids, who therefore need the cash from the parents. And around and around it goes…

To this end, it would be positive to see more lenders in the high-LTV space. The number of 95 per cent LTV products has fallen since the end of Help to Buy 2 and a commitment here would benefit first-time buyers. Could we even – dare I say it – see a return to 97.5 per cent LTV?

The ongoing and ever-increasing reliance on Bomad cannot be the right way for the first-time buyer market to continue. It is time to recognise the limits this imposes for all.

Richard Adams is managing director of Stonebridge Group