Rob Clifford is group commercial director at the SDL Group which is a shareholder at CENTURY 21 UK, MoneyQuest and Stonebridge Group
Of all the new lenders to have launched over the past decade – some infinitely more successful than others – perhaps none have had the impact and reach of that great institution, ‘the Bank of Mum and Dad’. For all the talk of getting people onto the property ladder, there’s no doubting that without the considerable financial resources utilised by this Bank to support first-timers in particular, then the number of homeowners would have fallen even further than it has already.
Recent research suggests that ‘Mum and Dad’ or Aunty, Uncle, Great Grandmother, you name the family member, have already ‘lent’ £5bn alone this year which would see them comfortably into the top 10 UK mortgage lenders. A considerable toe-hold and one which many ‘competitor’ lenders would be incredibly proud of, and one suspects that the need for such backing in order to save the larger deposits necessary to buy in today’s market, are not going to recede anytime soon.
Indeed, we have now reached a point where ‘the Bank of Mum and Dad’ could be slowly metamorphosing into a something more than a collective name for parental support. There is the kernel of an idea that both ‘Mum and Dad’ may have become comfortable with using their financial resources to help, and with little persuasion could be inclined not just to lend money to their own offspring, but others as well.
Recent research from L&G put this question to investors and nearly a quarter came back and said they would consider such a move, with a further 3% saying they would ‘definitely consider’ funding other people’s children onto the property ladder. Of course, unlike with their own children, where getting the money back or any return might not be a huge priority, investors would not be willing to do this out of the kindness of their hearts/to get their children out of the family home. Instead, they’d be looking for a return on that money, either in the form of interest on the loan, or rent from the borrower or a share in owning the property.
And it’s here where you can see how ‘the Bank of Mum and Dad’ could be institutionalised, or where an existing lender could develop a product wrapping that might fit this demand, also providing real access to those borrowers who require such a proposition. In a way, the set-up required is not a million miles from the crowd-funding options that already exist, and one suspects there will be the possibility of individual investors spreading their risk across multiple ‘offspring’ in order to hedge their bets.
Indeed, I wonder if the marketing departments at various lenders are not already dreaming up ‘Surrogate lending’ schemes or products which allow savers to ‘Foster a first-time buyer’. Again, the devil will be in the detail in terms of what the return will actually be – will it be a straight interest payment on the loan, or would Mums and Dads want to benefit more from any capital appreciation? Again, we’re not too far away from the equity loan schemes that already operate, most notably through the government and Help to Buy.
All in all, it’s perhaps not surprising that those with savings to spare would be looking more at property for their investments, rather than the measly interest rates available from most savings accounts these days. Indeed, with Bank Base Rate likely to be cut again – dropping mortgage rates further – and first-time buyers being provided with a more comfortable environment (at the expense of buy-to-let investors) in order to make their moves, then we could see a resurgence in first-timer purchases, perhaps helped by an older population willing to help with their deposits.
Taking this one step further, given the government and Bank of England-introduced measures which are designed to curtail buy-to-let activity, we may even have a community of BTL landlords/investors willing to lend deposit money if this could also come with a share of the property and/or rental income. While this may be more difficult to deliver, it’s nowhere near impossible, and would allow investors to keep investing in property without having to pay the increased stamp duty costs or deal with the other buy-to-let obstacles being placed in their path.
So, could we have a real movement to ‘deposit lending’ from the Bank of Mum and Dad over the next few years? As stated above, there would be plenty of i’s to dot and t’s to cross in terms of how such lending schemes and products would work, however with the right criteria and terms, this could be a major step forward for those seeking help, and those willing to provide it.