The end of the Bank of mum and dad?

In the later life lending market, we have seen a reduction in enquiries for 'Bank of Mum and Dad' cases and increased caution from those still making enquiries to help children onto the property ladder. As with all potential equity release clients, we explore all the alternatives available and we are finding that more clients in this space are open to different solutions. We have also had an increase in clients making speculative enquiries regarding releasing equity to meet the increased cost of living, both for themselves and considering the difficulties being faced by their children and grandchildren. There is clearly a lot of fear around at the moment, with that comes the danger of people acting before they need to. Of course there will always be those for whom the only option is to go ahead as a matter of urgent need, however sometimes the best advice is to do nothing, at least for the time being.

I predict that the Bank of Mum and Dad won't change all that much in the owner occupier market. If parents have the sort of money that they can use for mortgage deposit gifts, and they earn well, they won't see it as anything more than a gift. If the family is low income, or the money was inheritance, they will know it is finite and not something they can build back up again. Personally I think that is, and has always been, the underlying factor in gifted deposits. If we are talking about smaller part deposits, that's different. £5k as a small gift from anyone who can only afford this, will be a much bigger deal and every homeowner knows how fast £5k can go if there is an emergency. If you can only afford to give a small amount, then you might be better served holding onto it in case the cost of living gets a bit too much.

I am still getting a lot of parents wanting to help their children get onto the property ladder, but not as much as before. I am also finding that it is now older parents who are more likely to be help, namely those who are closer to retirement who maybe have no mortgage or have a bit more in the bank and are therefore not impacted as much by the rising cost of living. However, I am seeing a lot more parents helping in different ways than just gifting their children a deposit, such as using Joint borrower Sole proprietor mortgages to help boost what their child can borrow and help them in that way instead.

Typically across the last decade or even longer first time buyers have looked to their parents or grandparents to assist them with deposits to get onto the property ladder. However these funds are not usually savings or investments as most families are just not "cash rich" to provide these. More usual was for the parent or grandparent to refinance their own home, releasing some future inheritance to gift to the younger generation. What we are seeing now and this will no doubt impact on the level of first time buyers moving forward - is that the affordability to create this gift is just not there. The parents or grandparents living costs have gone up by £300+ in the last year , with the cost of energy, food and fuel rising meaning they cannot afford to place a mortgage onto their properties to fund deposits. Lenders have also tightened capital raising criteria , and interest only criteria making it more difficult to secure these funds - and of course the interest rates if you can secure them are typically double or even triple the figure from 12 months ago. Could this mean that the bank of mum and dad is no longer a viable option for First Time Buyers? Well without them, we have a stagnant property market which in turn will effect the economy. So in the short term at least we need to find away to support First Time Buyers onto the property ladder , until the bank opens once more.

Bank of Mum and Dad remains a prominent feature of many of our First Time Buyer applications, largely due to inflated property prices forcing prospective buyers to stretch beyond the upper limit of the affordability thresholds. The release of products such as “Helping Hands – Nationwide” and “Boost LTI – Accord Mortgages” has allowed FTB’er to reduce the deficit between the proposed purchase price and previous affordability restriction which has subsequently reduced need for larger gifted deposits. Joint Borrower, Sole Proprietor propositions have, in recent years, allowed for smaller gifted deposits requirements from the Bank of Mum and Dad however, the significant affordability changes and rising ONS data has reduced the plausibility in recent months. In summary, despite the rising costs of living, I believe inter family gifts will remain a key feature in First Time Buyer market, but I also feel that a property price correct is required to prevent the outpricing of the younger market.