"Leave no stone unturned in addressing any gaps in your offering and make sure you put in place what is required to ensure all parties know what they are getting themselves into."
This is something we’ve been keen to highlight and hopefully dissuade lenders from ‘messaging’ because it seems rather counter-productive, and sets a tone whereby individuals that could purchase are somehow put-off because they believe the only options available to them lie via the Bank of Mum & Dad (BOMAD).
It’s also something of a concern because I often wonder just how prepared and knowledgeable those providing the support are when it comes to making the necessary decisions to, for example, become a guarantor, or gift a deposit, or put away large amounts of savings, in order to allow their offspring to purchase. Certainly, there’s no shortage of mortgage product available to them, but are they always clear on the responsibilities they have should, for example, their son or daughter not be able to pay their mortgage.
Add in the number of schemes available to first-timers, for example, Help to Buy or shared ownership, and you can understood why we have the potential for some serious issues in the future, should that purchase (and subsequent mortgage payment) not go as planned. Who, at the end of the day, is on the hook should the worst happen?
Advisers may well find themselves in a rather tricky predicament with such clients because, while it’s absolutely necessary that all parties in this purchase receive regulated mortgage advice, when it comes down to it, the focus may be more on the legals, rather than the finance. How many advisers operating in this sector are insisting on the parents/grandparents receiving independent legal advice before they go ahead?
We all know this is a requirement should these parents/grandparents be utilising an equity release product in order to free up equity to help their children, but what about those not taking out a regulated product; who are for instance, are putting savings away with a specific lender or gifting money? The former is an increasingly popular option but is there an awareness of what could happen to those savings should the child not pay the mortgage?
There may also be an issue here in terms of the vulnerability of parents/grandparents when it comes to providing such support? While we are not, in any way, suggesting that these people are vulnerable, if perhaps we are talking about much older individuals, then there is perhaps a greater chance of vulnerability. How, as an adviser, are you handling this situation?
Perhaps there’s an underlying tension or suggestion that the parents are somehow being coerced into helping their children/grandchildren? Perhaps, even after legal advice, it’s clear that those concerned are not fully aware of what they are signing up to, and their own responsibilities should that mortgage not be paid in the future? How would you deal with that?
The FCA recently consulted with firms on draft recommendations around vulnerable customers, and this has certainly moved further up the regulator’s agenda in recent years. If you add in the potential for customers in later life accessing equity, or taking our further mortgages and loans, in order to support their first-time buyer children, then it won’t take a genius to work out how this could potentially open up a can of worms, and the adviser could be seen as culpable if customers believe they were not in possession of all the information and facts at the time that decision was made.
In a sector of the mortgage market where parental support is becoming much more the norm, and where advisers are going to need to tailor their advice towards different generations, making sure that you have all bases covered is going to be absolutely critical.
It’s not as simple as presenting a product or scheme that is suitable for the first-timer and leaving it to them to ‘convince’ their parents to help and provide the necessary information – you are going to need to know that everyone is clued up on what is being arranged, what is being signed, what is at stake, and what state of mind all participants are in. Otherwise, that advice is likely to be challenged in the future, especially if payments are missed.
In that sense, a review of systems and processes for first-time buyers supported by BOMAD, is essential. Leave no stone unturned in addressing any gaps in your offering and make sure you put in place what is required to ensure all parties know what they are getting themselves into.
