When it comes to the mortgage market, we appear to be never more than a day or two away from either research or product news around the concept and depth of the Bank of Mum and Dad (BOMAD) and its impact on first-timers seeking to get onto the property ladder.
This week, it is research from Legal & General which reiterates BOMAD as a ‘Top 10 lender’ in this country, suggesting that the contribution of financial support to family members has increased by £6k to £24.1k. A considerable amount in anyone’s money and perhaps there is little wonder why the mortgage lending community continues to work hard at offering product options for those who are able to utilise the coffers of their parents/grandparents.
L&G says the parental contribution has now reached £6.3 billion this year alone, and given we have more than four months remaining, it might be looking to touch £10bn before 2019 is out.
While this is of interest, and as mentioned, fuels the growing number of mortgage products which exist off the back of any form of family contribution, what is perhaps more worrying is the lack of advice being taken by these individuals, and where this ultimately might lead them to.
For instance, the positive is that while last year only 12% of BOMAD participants say they sought professional advice before committing their money, this is now up to 31%. But, that still leaves almost a half (44%) saying they either hadn’t taken advice or simply wouldn’t before they gifted their money, or (no doubt) they became involved in the mortgage finances of their offspring.
This suggests either a high level of naivety on the part of those involved – would they also not take any advice for their own personal mortgage – or a very large level of trust in the ability of their offspring to run a tight mortgage ship? Perhaps they are simply ‘writing off’ this money?
Whatever the mindset, how many have truly thought through the decision and its overall impact on the child as well as themselves? The L&G research itself reveals the extent to which the BOMAD is willing to potentially (and perhaps severely) impact their own plans for retirement.
While, over half are just handing over the cash (53%), 9% said they were cashing in lump sums from pension savings, 7% were using pension drawdown and 6% were drawing on their annuity. If they have not taken advice, then are they at all clear about what this might do to their overall pension pots, and what ultimately this could mean for them?
It would seem not, because already 15% said they had accepted a lower standard of living in order to contribute to their offspring’s purchase ambitions, while 6% said they were actually postponing their retirement.
The lack of advice is only likely to harm all parties in terms of the way in which the Bank of Mum & Dad supports the child, the schemes which they use, and the products they access. Without advice, how can any of the participants truly say they have chosen the right way to purchase (or contribute) for all? There are numerous first-time buyer schemes, and numerous ways in which lenders can facilitate the help of a parent – are they aware of these? Without advice I doubt it, and without advice the potential for storing up trouble for the future is even greater.
Not withstanding the issue of those potential purchasers who are simply not lucky enough to be able to draw on a family members’ wealth, we really need to press home the importance of advice for all stakeholders here. With nearly half saying they wouldn’t, or hadn’t, planned to take advice, we have a significant gap to fill, and the potential for things going wrong is also increased.
It’s clear that we, as an industry, need not just be targeting the first-time buyer but increasingly the parents/grandparents as well. Advice is required by all and there is clearly an opportunity to provide much-needed support and peace of mind in this area to far more clients. The dangers of not taking advice should be spelt out quickly – it is dangerous to go it alone especially when the consequences could be far-reaching for more than just yourself.
Pad Bamford is business development director at AmTrust Mortgage & Credit