Friday, December 6th, 2019
The injection of capital from parents and grandparents to help the younger generations get onto or climb the property ladder appears to have become ‘par for the course’ in today’s climate, but who is providing professional mortgage advice to those giving this financial support?
Mortgage advisers could easily find themselves in a difficult position where their clients are being assisted by family members, and it remains to be seen how many advisers insist or at the very least recommend that those giving the assistance should seek independent legal advice before proceeding. Without it, the concern is that those providing financial support may be inadequately prepared for the process ahead.
There are now many different approaches, schemes and mortgage products that allow help and assistance from parents and grandparents. They include becoming a guarantor, gifting a deposit, or perhaps assigning savings to facilitate all or perhaps part of the purchase.
Where parents and grandparents utilise equity release products in order to release capital to help their children or grandchildren, they are highly likely to have had access to both financial and legal advice. In the case of those assigning savings, it is very important to recognise that those savings could be put at risk should payments on the new mortgage not be maintained for any reason. This risk can be further amplified where schemes such as Help to Buy or Shared Ownership are used, as this will affect the way in which any residual equity is prioritised should there be the need for a forced sale.
Further consideration should be given to the potential vulnerability of family members providing the financial assistance in these instances. A professional mortgage adviser can help identify a potentially vulnerable borrower during the application process, but how should they assess the potential vulnerability of the family member? In cases where a mortgage adviser is not used there is a greater risk that this may not happen at all.
The industry regulator, the Financial Conduct Authority (FCA), recently ran a consultation regarding draft recommendations in relation to potentially vulnerable customers. Their main concern was the potential for those utilising their equity or taking out additional mortgages and loans to support their children, to be potentially left “high and dry” in the future.
As these scenarios are now more commonplace, mortgage advisers must tailor their advice process towards different generations to make sure that everything is well documented as it is highly likely that a broker would be found to be culpable should they fail to highlight that a vulnerable person could be at risk.
A professional and expert mortgage broker will always encourage the parties involved in this type of transaction not only to discuss all the options that are available to them but also seek independent legal advice where applicable too.
Here at Caboodle Financial Services Limited of Sutton Coldfield, Birmingham, we work very hard to ensure that all our clients get the very best mortgage advice in all the circumstances. If you would like to discuss your individual requirements or make a confidential, no-obligation enquiry, call us today on 0121 308 9114 or alternatively click HERE to contact us and one of our expert team will be in touch.
Caboodle Financial Services Ltd
Mere Green House
46-48 Mere Green Road
West Midlands B75 5BT
Telephone: 0121 308 9114