The Cambridge on Guarantors – a market update from the East of England

29 August 2017 • Our Insights

The Cambridge on Guarantors – a market update from the East of England

“BoMad” is the ninth biggest lender in the UK

The Bank of Mum and Dad “BoMad” helps to finance 26% of all UK property transactions, equivalent to being the ninth biggest lender.

Despite the weight of BoMad there remains a large shortfall in comparison to the proportion of prospective buyers under the age of 35 seeking help from family and friends to purchase a home, which stands at 62%. This marks a considerable increase from the previous year, up 30 per cent.

A generational split in fortunes between so called Generation Y, Z and the Millennials in comparison to the baby boomers has increased at a rapid pace since the recession in 2008. With two thirds of UK wealth sitting in property, it is easy to see the potential upside. The younger generations have seen economic challenges impacting life stages, from starting a family to the requirement to save up to 18% of income for a satisfactory retirement. This has resulted in a falling rate of home ownership, largely embodied by the difficulties of saving for a deposit to purchase a home.

The future for our younger borrowers

Research suggests home ownership could fall 7% between 2015 and 2025 impacting mostly people aged 18-34 years. The proportion of the funds released from equity in property to provide financial support to family is insignificant in comparison to up to 60% of equity released for use in property renovations.

There are high barriers to entry for prospective home buyers into the UK property market and there have been attempts from the Government to curtail falling home ownership. However these can only go some way to assist the issues caused by the investment attractiveness of property, the glut in housing supply and the growing UK population.

What can we do about it?

Guarantor mortgages provide a practical solution. In a nutshell a guarantor mortgage can transfer the credit obligation of the mortgage liability onto a guarantor, making them contractually obligated to meet any shortfall should the borrower fall behind on their monthly payments.

The core type of Guarantor mortgage is a servicing guarantor, this is where the guarantor’s income is used to support a lending decision, and the guarantor will be liable to pay if the borrower defaults.

At The Cambridge, we feel passionate about helping our customers finance the purchase of a home. We understand the pressures exerted on first time buyers and home movers, that’s why we offer a great guarantor mortgage proposition. Unlike most lenders our proposition is bolstered by not discriminating on age or employment status (employed or self-employed) and we have also recently increased our lending term to improve affordability. So give our intermediary team a call to find out more about our guarantor mortgage range.

 

The Cambridge Building Society is a regional lender – products are available for lending within the following counties: Cambridgeshire, Norfolk, Suffolk, Essex, Hertfordshire, Buckinghamshire, Bedfordshire and Northamptonshire