BSA: Time to revisit 100% LTV mortgages

Michael Lloyd

November 14, 2018

Lenders need to revisit whether to introduce 100% loan-to-value mortgages, the Building Societies Association has recommended.

The trade body said societies need to look at whether technology solutions offered by the likes of Open Banking can feed into more accurate predictive underwriting and thus support this type of lending.

The BSA made the recommendation in its Intergenerational Mortgages: Building on the Bank of Mum and Dad report by Buckinghamshire Building Society non-executive director Dick Jenkins and economist Bob Pannell.

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.”

The BSA also recommended for clearer communications, breaking through the jargon to explain the options to all generations and tackling other barriers, such as the impact of regulations and taxes that limit lending or how property wealth can be put to use.

Some nine in 10 (87%) building societies expect the ‘Bank of Mum and Dad’ to play an increasing role in helping first-time buyers over the next five to 10 years.

But 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 a first-time buyer’s mortgage.

Robin Fieth, BSA chief executive, added: “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.”

Parents can also release money through an equity release mortgage or by downsizing. Older generations could use their property more inventively e.g. through ‘downsizing in situ’ and private equity loans could also contribute to the market.

However, all of these are expected to be comparatively small relative to the more direct support from family members’ financial resources.

Some 70% 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.

Some 86% of people want to own their own home, but the financial challenges facing first-time buyers explain why many think that they won’t be able to achieve this aspiration.

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%) 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 and 59% of building societies will accept a deposit from family members as security.

Meanwhile 33% will accept a charge over the property of family members to ease affordability barriers and 10% offer family offset mortgages.

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