Scanning through Twitter recently I saw a tweet which read, ‘TSB will go 90% LTV’. Nothing untoward about this, you might think, until you learn that the line underneath said, ‘Translate Tweet’.
I clicked on it and the above sentence didn’t turn into any other language, but it perhaps gives you an idea of how the Twitter algorithms view our industry acronyms, and I suspect there might have been a great number of Joe Public who will have also felt it was a tweet which needed translating.
This isn’t however an article about the need for plain English in our sector, and a request to cut down on the jargon that can be completely obvious and natural to us but alien to our clients. However, that always helps, and I believe advisers are the natural ‘translators’ to be able to clearly signpost consumers through our mortgage vernacular.
What I did see recently though were numerous references to ‘BOMAD’ – the Bank of Mum and Dad – in relation to a report from the BSA, which looked at support for FTBs, and how these products might help more first-timers get on the HL. I’ve made that last one up but I’m surprised we’re not using HL to describe the ‘Housing Ladder’ given the time we spend helping people on to it, and the collective gnashing of teeth it generates in political and regulatory circles when it comes to those who are (so far) unable to even make that first step.
The BOMAD appears to be a recent addition to the mortgage language, and that’s probably because up until say a decade ago, references to it were relatively few and far between. Of course, older generations have always helped their offspring to secure their first home but perhaps not in the numbers we have seen in recent years, and it was certainly not deemed a monumental part of the mortgage/housing market.
That has now changed. Indeed, when you learn that the BOMAD would be a Top Ten Lender in this country were its ‘loans’ and ‘gifts’ added to official figures, you can see just what an integral part of the lending landscape it now is. Many people would get nowhere near a first purchase in this day and age were it not for the largesse of their parents, or indeed that of the grandparents or great aunts, or whichever family member is in a position to help.
So, I completely understand the need for such a report, and I also understand the recommendations it makes to provide greater industry support to the growing number of parents, etc, who are helping their kids, the need for greater information on the product choices available to them, the calls for greater use of technology particularly in terms of turning equity in homes into deposits/guarantees, etc, for younger first-time purchases, and a review of regulation and Government intervention in this market in order to offer the best environment for this type of support, and the mortgages required to deliver on it.
However, I can’t help but have the nagging thought in my mind that we are reaching a point where it becomes the ‘norm’ for first-time buyers to have that generational help in order for them secure a property. It nags at me, because there will be many, many people who want to buy their own home but have no BOMAD to call upon, and as we move forward let’s not forget that the financial responsibilities of those in older age are only going to increase.
Helping a child onto the ladder with equity stored up in a property now, might seem like the right thing to do, but what if the pension they have is nowhere near enough to provide for their retirement, what if they find themselves forced to cover long-term care costs, what happens if their home requires full-scale renovation in the future, the list goes on. What if any of these requirements need to be financed and the money that might have been used – for example, via equity release – is simply not there or the individuals concerned have already ‘maxed out’ on the release amounts in order to provide deposits for kids/grandkids.
We may be asking the house to do a lot of the heavy lifting here, and while prices have clearly risen over the past 20 years or so, there is no guarantee that similar increases will suffice in order to provide the equity required. If anything, prices are plateauing.
So, while I appreciate there will be lucky individuals out there who can go to see their own family ‘bank manager’ and secure the funds they need, others will not, and even for those that can, it might not be advisable for the manager to provide the cash. They may need that ‘money’ far more for themselves in the future.
The importance of advice here cannot be underestimated, and it’s not just advice on the best mortgage product for the individual who is getting the gift or the guarantee from the family member. It’s for the family member themselves to ensure they are doing the best thing for themselves, and that their retirement won’t be compromised in the future by providing such a wonderful gift now.
This is advice required in the round, across the generations, and I can’t help feel it’s as important – even more so – than BOMAD product development or finding new ways to allow parents to help their kids onto the HL.
Richard Adams – Managing Director of Stonebridge Group