The Building Societies Association has produced a report on intergenerational mortgages, the recommendations from which include a call for more products and innovation from lenders.
The report, entitled ‘Building on the Bank of Mum and Dad’ aims to identify ways in which this increasingly common method of financing house buying can be supported “without jeopardising the long-term financial wellbeing of older generations.”
There are three main recommendations: that lenders should provide clearer information about BOMAD products; a call for greater innovation in underwriting and product development, incorporating technological solutions such as Open Banking and the development of sustainable schemes that “recycle” older household wealth into equity loan finance; and a review of regulation and government action. Examples include targeted inheritance tax exemptions and stamp duty relief to encourage intergenerational wealth transfer.
Regarding regulation, the report takes particular aim at the Bank of England’s stress tests for the interest rate, claiming that while delivering “a form of financial stability,” the tests deny young households the opportunity of buying their first home.
Co-author of the report Bob Pannell comments: “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.”
BSA chief executive Robin Fieth says: “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 FTBs.”
Meanwhile, Key chief executive Will Hale adds: “The BOMAD, and indeed the Bank of Gran and Grandad, are big players in the lending market and we need to concentrate on how we can help them help their loved ones.
“Developing more innovative products should certainly be a focus but perhaps more important is the need to facilitate access to specialist advice. This will help them address the challenges that people face when they want to help their loved ones and so ensure that the BOMAD make safe sustainable choices for themselves and their entire families.”