Paul Lewis (pictured) is national development manager at Mansfield Building Society
We hear so much about the ‘Bank of Mum & Dad’ - its ‘top 10 lender status’ and its ability to help children onto the property ladder - that we sometimes forget there is a bigger family unit that is often willing and able to provide support. Sometimes it can even be a case of the ‘son or daughter landlord’.
The increased need for family help is perhaps not surprising given a changing society and the way the UK housing market has moved in recent years, and it can certainly add another layer of complexity to borrower circumstances.
The ‘specialist market’ has of course developed out of this increased complexity – most advisers will see cases day after day which are way beyond ‘vanilla’ for a variety of reasons. It could be to do with the property itself, the income, the rental yield, the borrower’s employment, income sources, how they wish to use the property - the list goes on.
Years ago, the ‘straight down the line’ approach of the banks would not have helped these borrowers one iota. The message being, ‘This is our standard criteria for everyone – you either meet it and get the loan, or you don’t’. Now, however we have a much more flexible and, dare I say it, focused lending community, many of whom (like ourselves) are willing to consider cases beyond standard criteria and look at the individual facts of the case.
The notion of family members supporting one another with their property comfortably fits into this approach. We believe it’s important that those who want to help and support their nearest and dearest have the best chance of doing so, even if it’s simply putting a roof over their head and allowing them to pay a reasonable rental rate for such a property.
Increasingly we’re seeing a new wave of borrowers who are looking to help relatives but perhaps the individual doesn’t wish to purchase a property as an owner-occupier; instead, they have a place to live and will effectively be purchasing a buy-to-let property with the aim of putting their relative in that property.
It’s one of the reasons why we launched our ‘Family Buy-to-let’ mortgages and, as advisers will know, where a property is let out to a family member – or indeed where the borrower intends to live in the property themselves at a future date - this product is regulated by the FCA.
But, what if the individual doesn’t want to let the property to their relative at a market rent? We’ve had two recent cases where this has happened, and we’ve been able to use top slicing and take into account the personal income of the borrower to get over what might be an insurmountable barrier to some other lenders.
In these two cases, a son wanted to buy a home for his mother to live in, and a grandmother wanted to buy a home for her daughter and grandson – both at a reduced rent. We offer loans of up to 75% LTV, and in both cases, ordinarily that rent would not have been enough to cover our usual rental income requirements. However, looking closely at the case, and seeking the background income levels and wealth of both the son and the grandmother, we were able to ascertain that they had enough income to cover the ‘rental shortfall’.
It allowed us to offer both mortgages and our belief is that this is the type of lending that mutual building societies such as The Mansfield should be doing. It takes a specialist approach and it needs to be individually underwritten because, as we know, a computer scoring system would simply have rejected both these potential borrowers at source.
The good news for advisers, who regularly see clients with more complex requirements, is not just that lenders are offering flexible criteria. Moreover, we would urge advisers to speak to their BDMs about their clients’ circumstances because they might be surprised at what can be done.
