Lenders should reconsider lending up to 100 per cent loan-to-value mortgages to first-time buyers and aid the younger generation in joining the housing ladder, a trade organisation has suggested.
A report commissioned by the Building Societies Association (BSA) recommended building societies and lenders "revisit the case" for 100 per cent loan-to-value within "appropriate parameters", in addressing the role of intergenerational lending in the mortgage market.
The report, titled ‘Building on the Bank of Mum and Dad’, suggested fintech solutions such as open banking could facilitate increasingly accurate predictive underwriting to support full value lending.
The research found most underwriters in the sector were not "philosophically averse" to 100 per cent lending, but the associated risk was well appreciated.
The study found building societies had shown a high level of product innovation in support of funding from the 'Bank of Mum and Dad', but identified a "greater role" for guarantees, the use of family collateral and flexible mortgages tailored to deposit-raising and affordability criteria.
The BSA’s analysis found 87 per cent of building societies predict the 'Bank of Mum and Dad' to play an increasing role in the housing market in coming years and 59 per cent of aspiring first-time buyers expected support from this type of family funding.
Bob Pannell, former chief economist at the Council of Mortgage Lenders and report co-author, said: "Our young people face huge challenges in buying their first homes. Families instinctively want to help, and it’s the job of lenders, regulators and government to ensure that they have more opportunities to do so in a sustainable way."
The report proposed improved fiscal incentives for intergenerational wealth transfer in an effort to tackle the issue of younger homeownership, but stressed it did not believe the government had "stood idly by" and noted the "huge footprint" of its flagship Help to Buy Equity Loan scheme.
Robin Fieth, chief executive at the BSA, said home ownership remains a fundamental ambition for the majority of people.
He said: "Against the challenging backdrop of high prices, a woefully inadequate supply of homes and a growing intergenerational divide, new ideas and strong debate are essential.
"Family help – the so-called ‘Bank of Mum and Dad’ - is great for those fortunate enough to have this option, but innovations in underwriting could help all potential first-time buyers."
The report also identified a case for the BSA and industry bodies to challenge regulators as to "whether policy sits well with economic reality and social objectives".
The report read: "The obvious case currently relates to the stressed interest rate requirements set out by the Bank of England’s Financial Policy Committee.
"Such housing tools deliver a form of financial stability, but do so by denying many young households the opportunity to buy a property that they are likely to be able to afford."
rachel.addison@ft.com
