From my perspective the UK mortgage and property markets are one big puzzle, with a level of interconnectedness that is often overlooked by power brokers and policy makers which, as a result, often makes the overall picture disjointed and incomplete.
Take, for instance, the recent figures out of the Equity Release Council which revealed that UK homeowners in total have £5.7 trillion in equity within their properties, up from £5.6 trillion back in the middle of 2022.
To say that is a significant chunk of change would be an understatement, and given we are a long way removed from the point where the vast majority of homeowners viewed their home as something not to be touched until they passed it on to their beneficiaries, we all have to be cognisant about what this might mean for the future of our market.
For a start, we know that parental homeowners are increasingly willing to access some of this equity in their own homes in order to support their offspring onto the property ladder.
For many first-time buyers it is essentially the only way they can stump up enough deposit to be able to make that first purchase, and clearly if you are sitting on that equity and you are in a position to help, then many homeowners are willing and able to do this.
In fact, as we are all aware The Bank of Mum and Dad (BOMAD) is now a considerable player in our marketplace. According to research from Savills, £9.4 billion was handed to first-time buyers by BOMAD during 2023, and the agent’s anticipate this will go over the £30 billion mark in the next three years.
What is interesting within this context is how that figure might develop, particularly in an environment where the options to release equity from property are growing almost each and every week.
Traditionally, as we know, the lifetime mortgage market was the preserve of much older borrowers, in their late 60s and 70s, or if you wanted to release equity you had to remortgage to a mainstream product, or indeed, downsize.
Now, however we have a whole new raft of hybrid products which bridge the gap between mainstream and lifetime mortgages, and which are accessible to borrowers mostly aged over 55, but with some options for those aged 50.
It is likely to shift this market considerably, and potentially gives homeowners greater options to release equity in order to support their first-time buyer children. Certainly, we are a long way removed from those children having to wait for an inheritance before having access to the family home and the money/equity therein.
Now, parents or grandparents can essentially provide that ‘living inheritance’, and are for the most part much more willing to do so, plus they can also maintain equity as required, and also see their children/grandchildren benefit in a property sense from this.
So, what might this mean? Well, as we know, there tends to be a two-tier first-time buyer market running at any one time anyway. Those who have BOMAD access and those that don’t, and perhaps if we’re being honest, the mortgage market has tended to focus on the ways and means by which it can help the former at the expense of the latter.
We must also acknowledge that, even with some parental support, the likelihood is that parents are not going to be gifting 10-40% deposits to their children, and would probably like to cap it at the amount which still allows the offspring to get a mortgage and purchase, but not at an amount which takes away too much of their own equity and/or savings.
Handing over a 5% deposit at certain times in the last decade hasn’t been enough because there has been a shortage of supply in the high LTV mortgage space. Now, however we have moved beyond that with approximately 250-plus 95% LTV products available, falling rates making affordability easier, and a greater number of options on the table.
If lenders can continue to keep these high LTV options out there, and more join them, with greater competition forcing rates down and easing the path to a mortgage for first-timers, we might see existing parental homeowners encouraged to provide 5% deposits in greater numbers.
Plus of course we have to continue to keep offering these products to those who are not fortunate enough to have a BOMAD in the wings and are instead trying to save for a deposit while also potentially renting and covering all other costs.
Essentially, we need product options for those existing homeowners/parents/grandparents at the top of the ladder who might want to help, to be matched by product options for those lucky enough to get this support and also those who will not.
That means a continued focus on delivering high LTV products to market and an understanding that the shifting sands of home ownership mean far more people now see property much more as an asset to be used and enjoyed rather than something to merely sit in.
