Craig Hall (pictured), head of broker relationships and propositions, Legal & General Mortgage Club
Over the next 10 years, it is estimated that as much as £1 trillion could move between generations. What are the reasons behind this shift and what options are available to help people benefit from it?
Rising wealth and higher mortality rates mean that spouses, children and grandchildren may end up receiving large sums of money, all in one go. It is in this transfer of wealth that lies the opportunities for brokers and lenders alike.
While we know how families have historically helped younger generations onto the property ladder, it is not just the Bank of Mum and Dad (BoMaD) – nor Grandma and Grandad – who are responsible for this transfer of wealth anymore. According to Legal & General’s BoMaD research, some 27% of buyers will receive financial help from their friends as well as their family this year, up from 25% in 2017.
However, the research also shows that parents are feeling the squeeze, with the average contribution towards a house purchase falling by 17% between 2017 and 2018.
As such, lenders are now creating a new suite of products which allow families to support their loved ones in different ways. For example, we have seen a large increase in the number of lenders developing products that cater for the needs of first-time buyers, whether this be through high LTV mortgages or family assist mortgages, such as Barclays’ Spring Board, Bank of Ireland’s Family Link, Vida Homeloans’ Helping Hand, or The Family Building Society’s Family Mortgage.
It is not just these types of mortgages, however, that are on the increase. Other popular options include parents acting as a guarantor, joint borrower sole proprietor, and multi-applicant purchases, including friends buying a property together.
At the other end of the spectrum, we also know that not all older generations necessarily have the wealth they need to rely on in retirement. We have seen the rise of Retirement Interest-Only mortgages and equity release products on the market, which can be used to fund retirement, pay for care costs or to help children buy their first home.
Figures from the Equity Release Council show that older homeowners unlocked £3.94bn of property wealth in 2018, up almost a third year-on-year, and this is only set to grow. In some cases we are also seeing the reverse of BoMaD, as the Bank of Son and Daughter begins to play a more prominent role in supporting retired parents.
Government schemes such as Help to Buy and Shared Ownership are also facilitating aspiring homeowners get on the property ladder, with nearly 200,000 completions having taken place through the Help to Buy Equity Loan scheme. These initiatives are not just limited to the younger generation either; those over 55 can also receive Government support through the Older Persons Shared Ownership scheme. Through this tenure, over-55s are able to buy shares of between 25% and 75% of the full purchase price and the rest is owned by a housing association, to whom rent is paid.
Government schemes and increased innovation will continue to support buyers of all ages, but inter-generational challenges are going to exist for some time, due to the imbalance in wealth, challenges with raising a deposit, and affordability at both the first and last-time buyer end of the spectrum.
The good news, however, is that these challenges represent both a huge opportunity and responsibility for lenders and brokers, not only to come up with more solutions for all life stages, but also to hold their client’s hand at each and every step of the mortgage journey.
Whether it’s inviting the whole family in for a meeting, encouraging clients to talk with their parents or even grandparents about their wealth, with so much wealth transferring between generations, these conversations are more important than ever before.
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