The Bank of Mum & Dad and Generation Rent

Welcome to our first newsletter of 2019! In this January edition, we look at the increasing influence of the Bank of Mum & Dad on the so-called Generation Rent.

We also take a look at why it can take as little as eight minutes for buyers to make a decision on a home, there's news on the mortgage industry's inroads into the digital market and we look at the option of shared ownership for young potential homeowners.

The Bank of Mum & Dad and Generation Rent

According to analysis produced by the Resolution Foundation, parental wealth has now developed into one of the determining factors whether young people in the United Kingdom own a home or not since the financial crisis – demonstrating the current inequality in the housing market.

Although homeownership rates amongst the 25-34-year-old age group have indeed declined, the recent introduction of schemes such as Help to Buy and shared ownership, as well as the myriad of mortgages now available, have been helping first-time buyers on to the market. Despite this push, Britain’s young people have been dubbed “Generation Rent” due to their decreased likelihood to be able to purchase their own homes when compared to previous generations – they are much more likely to be renting from a private landlord.

The analysis produced by the Resolution Foundation is the first of its kind as it has linked two long-running data sets together in order to attempt to measure the importance of the aptly named “Bank of Mum and Dad”, referring to parents supporting their children on to the property market. The foundation found that those with parental property wealth were 80% more likely to become homeowners than those whose parents did not own their own home.

Stephen Clarke, senior economic analyst at the Resolution Foundation, said: “High house prices and sluggish wage growth have meant that being able to buy a home of their own is almost impossible for many young people without access to the Bank of Mum and Dad.”

Making an interesting comment on how to bridge the gap in inequality, the report stated that the government’s Help to Buy equity loan scheme ‘could be better targeted’ and should additionally consider family wealth.

The report added: “Fundamentally, schemes like HTB are about helping those who are close to being able to afford their own home. In order to improve homeownership prospects for the majority of younger people, more concerted action is needed.”

It can take as little as eight minutes to decide on a property

As any estate agent can tell you, a successful sale hinges on a good first impression. Prospective buyers possess a sixth sense when it comes to viewing a property and if things aren’t up to scratch – inside and out – you can guarantee they will spot it.

In fact, a recent study has revealed that the average house hunter only needs eight minutes to decide if a property is for them or not and six in ten adults will also choose not to buy a property based on the condition of the exterior of the property, without even needing to view the inside.

In comparison, 18% of buyers admitted to buying the very first property they view and 15% said they decided to buy the property before they had even viewed it in person.

This decisiveness extends online, with the average buyer spending eight minutes deciding whether or not to visit a property – highlighting the importance of a good online advert.

75% also confessed to being irritated upon finding that an advert or online listing does not accurately represent a property when visiting in person.

The study also revealed which aspects of a viewing signalled an early exit for many prospective buyers. The main offender was an obvious damp patch, which 60% of buyers said would put a stop to any future transaction, whilst a house on a main road or cracks in the wall would also put an end to the viewing.

For the buyers who are good at seeking out the problematic finer details of the property, there were some decisive reasons for buyers backing out of the viewing, such as dirty toilet pipes, overflowing bins, wheelie bins left in front of the property and faded or yellowed paintwork.

Some viewers take issue with a sellers lack of preparation for the viewing such as untidy rooms, poor DIY and ashtrays left around the house.

Other reasons included logistical problems such as the size of the rooms being too small for the buyer’s furniture or issues with the natural lighting of the property. The current owner’s furniture cluttering up the layout of a room which preventing the buyer’s imagination from running wild led to over a third of buyers to back out of a purchase.

The list showcases the importance of sprucing up your home, both before putting it on the market and before every viewing. A prospective buyer needs to weigh up the additional costs and work involved in buying a property, so ensure you give your home the most generic makeover possible and organise your possessions and furniture in a way that won’t distract the prospective buyer.

Mortgage industry making inroads in digital market

Given the increasing digitisation of modern life and our preference to head to the internet to gather advice and information when it comes to making a decision of any size, it’s no surprise that digital tools and services have provided a boost to the mortgage industry. The complexity of gaining a mortgage doesn’t necessarily lend itself to full automation, but lenders and brokers are seeing increasing business as a result of their online presence and the way that they interact with their customers.

A report by the Intermediary Mortgage Lenders Association (IMLA) supports this, which simultaneously suggests that robo-advice models are unlikely to become the norm when it comes to bringing in customers. This is despite 38% of brokers questioned by the IMLA stating that this was the greatest threat to their business going forward.

The Financial Conduct Authority (FCA) and lenders are said to be supportive of the drive to further digitise the market, which should, in turn, mean that customers will find the process of obtaining a mortgage less time-consuming and less stressful.

The results of this approach are clear; more potential customers are searching for a broker first as opposed to the best deal, with Google searches for ‘mortgage broker’ reaching a 14-year high and increasing 180% over the last five years. Over 70% of customers are sourcing their mortgages through intermediaries, which strengthens the notion that people want to speak to an expert who can explain their options.

Additionally, price comparison sites appear to have had limited success in the industry, in stark contrast to their success and popularity in the world of car insurance. This is down to the limited range of criteria on offer alongside a lack of certainty that customers will fit the criteria for those loans. Robo-advice models are also expected to see limited efficacy, purely due to the complexity of the subject matter and the difficulty in replicating that in an automated service.

“We have already seen a number of digital advancements as the industry seeks out solutions to improve the mortgage and property transaction process. But we’re still some way from seeing a completely automated mortgage market as the technology cannot yet, and may never, fully address all customer needs,” said Kate Davies, executive director of the IMLA.

“Our findings suggest that consumers clearly appreciate the softer skills offered by brokers. And online tools have made it easier for mortgage brokers to advertise their services and to be sought out by local property buyers seeking information and advice. The digital revolution hasn’t yet disrupted the traditional mortgage journey, but it’s certainly making it more effective.”

Young people and the option of shared ownership

With the wealth of options out there to help people onto the property market, it is no surprise that the number of first-time buyers has steadily been increasing, with numbers currently at an 11-year high. However, outside of the government’s Help to Buy scheme, it seems that young people do not understand their other purchasing options – chiefly that of shared ownership.

What is shared ownership?
Research carried out from YouGov found that although three-quarters of people in the UK have indeed heard of ‘shared ownership’, only 40% of 18 to 24-year olds were aware of the scheme. Furthermore, of that 40%, half of them revealed that they had no knowledge of shared ownership whatsoever, other than having heard of the name.

The scheme explained
Aimed mainly at first-time buyers, The Shared ownership scheme is a cross between buying and renting. Essentially, you buy a share of the home – between a quarter and three quarters – and rent the remainder at a reduced rate, with the option to buy a bigger share in the property at a later date. All shared ownership homes in England are offered on a leasehold basis, and the majority are newly built; however, there are some properties which are being re-sold by housing associations. At its core, the scheme is intended to help first-time buyers onto the market, but those who earn a household income (combined) of less than &80,000 or are renting a council/housing association property can also buy through the scheme.

A viable option?
Many of those questioned in the YouGov survey thought that shared ownership meant quite literally sharing the property purchase with friends, family or a partner. When the scheme had been properly explained, almost a quarter of the 18 to 24 year olds stated that they would be “very likely” or “fairly likely” to use the initiative in the future, the highest out of all of the age groups questioned – showing that the scheme appeals directly to the target market, with just the awareness of the scheme limiting participation numbers.

“Shared ownership as a method of purchasing has been around since the 1970s and offers a realistic way of getting onto the property ladder. It’s a proven formula that helps people secure a home, even where a traditional mortgage is not affordable, and its longevity is testament to its success,” said Jaedon Green, director of product and distribution at Leeds Building Society.

“The method is becoming increasingly popular for first-time buyers as it reduces the need for a significant deposit, which can be difficult for some to manage. The scheme also permits first-time buyers to combine it with a Lifetime ISA, maximising any deposit,” he noted.

Awareness limiting efficacy
The YouGov research has shone a light on the fact that almost a quarter of those aged 24 or under would consider shared ownership as a way to purchase property, once they fully understood what the scheme consisted of. With so many potential buyers being put-off from buying a property simply due to lack of awareness it is clear that the onus is now on educating the wider public, and specifically 18 to 24 year olds, to the benefits of the scheme in order to continue to grow first-time buyer numbers and support the property market as a whole.