The increasing value of wealth flowing between different age groups is an opportunity advisers cannot miss out on
The amount of money set to be passed from one generation to the next is on track to reach as much as £1tn over the next decade.
This sharp rise in intergenerational wealth means loved ones may well end up receiving large sums of money in one go.
Unsurprisingly, this vast transfer of wealth will create huge opportunities for brokers and lenders – but how can they make the most of it?
We often think of younger generations turning to the Bank of Mum and Dad to help them get their foot on the housing ladder, and while our latest research has shown that parents are still an important port of call, the dynamics are changing.
Our research revealed that a huge 27 per cent of buyers received help from family or friends in 2018, up from 25 per cent in 2017.
The value of parent-supported property purchases was set to hit as much as £81bn last year. However, the average contribution fell by as much as 17 per cent between 2017 and 2018.
In response, lenders have brought a host of new products to market, aimed at providing families with a number of options to help their loved ones get a mortgage.
For example, there has been a sharp increase in the number of lenders offering high-LTV mortgages or family-assist mortgages, such as Barclays’ Spring Board, Bank of Ireland’s Family Link, Vida Homeloans’ Helping Hand and the Family Building Society’s Family Mortgage.
For those parents who do not have the option of giving or lending money, there are other ways to help. These include acting as guarantor, joint borrower sole proprietor or even multi-applicant purchases, which allow friends to join forces in buying a property. It is creative thinking like this that is partly responsible for why we are seeing more buyers taking their first steps, with the number of first-time buyers hitting a 12-year high last year.
But it is not just about those who are just starting out; there are also a number of older individuals who do not have a sufficient nest egg to fund their retirement. As a result, retirement interest-only mortgages and equity release products, which can be used to fund retirement, pay for care costs or help children get on to the property ladder, have grown in popularity.
The latest figures from the Equity Release Council found that 38,912 people used equity release in the first half of 2018 alone, with many of them taking out such plans for the first time.
Government initiatives such as Help to Buy and shared ownership have also gone a long way towards helping homeowners. According to the Ministry of Housing, more than 458,000 completions have taken place using one or more of the HTB schemes, of which 402,000 involved FTBs. These schemes are not limited to millennials either; over-55s are also eligible for support through the Older Persons Shared Ownership scheme. This allows people to buy shares between 25 and 75 per cent of the full share price, with the rest owned by a housing association.
There is little doubt that government schemes, combined with innovation from the mortgage industry, will continue to boost the buyer market. However, intergenerational challenges are likely to remain, with people facing an imbalance of wealth, difficulty raising a deposit and concerns over affordability.
The good news for brokers is that this changing landscape creates a great opportunity – as well as an important responsibility – to come up with solutions for all life stages, and make sure that clients fully understand the options and implications at every point.
Whether it is inviting a client’s family to go through the different choices available to them or encouraging them to talk to their parents and loved ones about inheritance, advisers have the chance to make a massive difference in people’s lives.
And with so much wealth set to transfer between generations over the coming years, these conversations have never been more important.
Craig Hall is head of broker relations at Legal & General Mortgage Club