‘Intergenerational fairness’ is something of a buzz phrase at the moment especially when you consider what appears to be a huge discrepancy in wealth between the baby boomers and millennials.
The former demographic is widely considered to have benefited significantly from an economic environment which has bequeathed them such gifts as house price inflation, free education, final-salary pension schemes, and the like, while the latter group have been left to pick up the cost of austerity, large student loans, low wages, high rental costs, etc, which have left them struggling to get on the housing ladder.
Of course, this is a very generalist view and there are plenty of pensioners living in poverty with only their State pension to rely on, while certain millennials are fortunate to have the Bank of Mum & Dad to help them secure a first home.
Neither situation is of course anywhere near ideal, but one wonders about some of the recommendations made recently by the House of Lords Select Committee on tackling intergenerational fairness, particularly in relation to the mortgage market and the suggestion that the market (and the regulator itself) should be doing more to provide products which help family members support their younger offspring.
While I support the Committee’s view on building more new homes which might also be ‘accessible and adaptable for older generations’ so that they might want to downsize into these properties, I can’t help feel that the Committee has bought a line which effectively suggests that nowadays only younger people with family support can buy a home.
If that’s the point which we’ve arrived at, then I think there needs to be a fundamental rethinking of our priorities because I’m quite sure that there will be more people who cannot access the Bank of Mum & Dad, rather than can, and are we now effectively saying that without a parental cash injection or guarantor, you pretty much have no chance of being able to become an owner-occupier.
A number of commentators have queried recently whether the first-time buyer mortgage market has already turned into one which requires parental support in order to purchase, and this Select Committee report appears to be encouraging a further move in this direction, rather than also seeking to help those potential purchasers who don’t have that support and may only be able to stump up a small deposit.
There is a strong argument to suggest already that the family-supported first-time buyer market is very well served. There is hardly a lender that isn’t offering ‘first-time buyer’ products which require a guarantor or savings from family members to be put away, or are willing to offer higher LTVs if such guarantees are in place. Not forgetting all those who accept gifted deposits and the like, plus we have a growing number of ‘joint borrower sole proprietor’ type mortgages and increasingly equity release is being utilised to support first-timers onto the housing ladder. You might argue that the market is awash with options for those who can have family support.
What we tend not to have are plenty of mortgage options for those who can’t go to a parent or family member and ask for their financial help. High LTV mortgage product numbers have risen over the last 12 months, but the levels of business being written are still relatively small and high LTV for many lenders means 90%, rather than anything higher.
The biggest obstacle for first-timers is getting a deposit together which is large enough to meet high house price valuations, and is enough for the mortgage to be affordable. There is an opportunity for lenders to offer both higher LTV products and to ensure their pricing does not mean – as it currently does – that those with small deposits pay up to 50% more each month than those with, for example, a 75% LTV product.
Lenders are always going to provide plenty of options for those with access to BOMAD because it significantly reduces their risk; instead of calling for more of the same the Select Committee should be urging them to cater for those who are not so fortunate.
Richard Adams is Managing Director of Stonebridge Group