We need more 95% LTV products

We need more 95% LTV products

For those reading this who are parents of school-age children, the prospect of seeing your offspring fly the nest, seek their own path in life, and find a new home to do it in, might seem like a lifetime away. Indeed, there will be many parents who at certain times in their lives – and based on their child’s behaviour – might yearn and ache for the day when that same child has left the family home, is out of your hair and is not spending their entire life whinging and moaning up their lot and existence. Do I sound like I’m talking from experience? I don’t mean to.

That said, as a parent of a child who actually isn’t a child anymore, my advice would be not to wish their lives away too much because you will undoubtedly miss them when they’re gone and indeed, houses can be too quiet. However, the point is that as we look at the society we have today and the options – or perhaps lack of them – that younger people have, then the thought of cutting those apron strings does seem to grow further and further away.

I’m sure you all have friends whose kids might have gone away to college or University but are now back living ‘at home’ because they’re unable to afford to rent privately, let alone buy a place on their own. Then there’s the ‘kids’ of friends who, even into their 30s and 40s, find themselves back at ‘home’ due to unforeseen circumstances like the fall-out from a divorce, or again, simply because getting on the property ladder costs so much, saving up for a deposit seems like a bridge too far, and they need breathing space from renting or order to get anywhere near to the money required.

I suspect it’s an odd situation to be faced with but again, as a parent, what are you going to do? My own feeling is that, if I’m in a position to help, then I’m going to do so, and judging by recent research about the depth and breadth of support that the ‘Bank of Mum and Dad’ now provides, it’s becoming a far more ‘normal’ part of parental duties to do this. Indeed, that notion of your child going off to fend for themselves at 18, for example, is starting to seem like the stuff of bygone days – like sending your child up the chimneys or having them not look at their phones. Now, we are faced with an economy and society that means our kids look likely to require help far beyond their childhood years.

This, of course, is interesting on any number of levels, certainly from a housing and mortgage market perspective – in terms of the amount of money now being funnelled to children to help them purchase and indeed rent – but also in terms of the requirements of parents and how they go about living their lives in ‘later life’; principally whether the need to help children fund a home starts to become a normal responsibility of parenthood like changing nappies, bathing and putting them to bed was when they were younger.

Of course, there is a huge issue here because despite the amount parents are giving their kids it’s always going to be the case that not every child will be lucky enough to draw down this cash from their parents. And so we find ourselves in a situation of huge disparity, whereby it appears to be impossible for younger, potential homebuyers to actually get on the ladder because they (and their parents) don’t have the ways and means to pull the deposit money together to purchase.

As we know only too well, whereas ‘back in our day’ a high LTV mortgage of 95% was often the way into a property – and house prices were a lot less so the 5% needed was easier to achieve – now we find that 95% isn’t really the norm, and that first-timers need at least 10%, and much more, if they’re going to secure the best rates. Are we rapidly moving to a situation therefore where the Bank of Mum and Dad – despite their best efforts – can’t find enough money to help and/or are stretching themselves far too thin in order to help, but at the same time are putting their own financial health in danger by doing so.

Research from Prudential just this month suggests that one out of five parents had taken money out of their own pension pot to help, or they’d stopped saving in order to do so. Others said they’d had to go without certain things and/or they’d been short of money for emergencies since giving the money to their kids. And the research also seems to suggest that once that money is given, it’s pretty rare to get it back – these are not loans as such, they are more like gifts.

Even while house prices might be plateauing slightly, and there are more properties potentially available to first-time buyers right now as landlords are less likely to be purchasing, we still have the deposit hurdle to get over and that hurdle is much more likely to be set at 10%, rather than 5%. Despite some recent murmurings around lenders increasing LTVs to over 95%, potentially even close to 100%, I’m not sure we have a regulator too enamoured of such availability and neither do we have lenders truly willing to lend at what is bound to be seen as the riskier end of the scale.

So, while parents might currently be willing (if not able) to help, we are also going to need to have lenders more active in the 95% LTV market if properties are not to continue being out of bounds for many people. A 5% deposit is obviously more achievable than 10%, plus it might be do-able without bankrupting the ‘olds’, but the products have to be there and (more importantly) the lenders have to want to lend in this space. The greater use of private mortgage insurance can make this prospect far more appealing for lenders who are concerned about the risk and by creating more opportunity in this space for borrowers, we might not be condemning parents to a lifelong commitment to financing the housing needs of their kids.

Pad Bamford is business development director at AmTrust Mortgage & Credit