Generation Home

In this episode, we sat down with Peter Dockar from Generation Home.

Generation Home is a mortgage lender that helps buyers afford more. The reality is that even people with good credit can be unfairly locked out from the mortgage they need.  In fact, 92% of our existing customers say they wouldn’t have secured a mortgage to meet their needs without us.

We love to help people who struggle to prove affordability, lack savings, require family support or are self-employed. For example, our income booster product allows family members to offer financial support with the mortgage payment and so enables our customers to borrow an additional £65,000 on average.  Innovative products like this help both first-time buyers and existing homeowners keep pace with rising house prices and afford to buy the home they want.

Hello everyone, and welcome to this podcast brought to you by Charles Cameron. Today I’m joined by Pete Dockar at Generation Home, and today we’re going to be talking about what life is like as a first-time buyer looking out on the market and what generation home can do for yourselves when you are looking to purchase your first property.

CELINA:

So welcome Pete to this session.

PETE:

Thank you very much. Lovely to be here.

CELINA:

Lovely. So, in terms of the kind of buying your first home, it is a very big step for many people across the UK. The main hurdle is saving for that very important deposit. So, what sort of mortgages are out there for people who might have a smaller deposit?

PETE:

Of course. And the first point is you’re completely right. There are 4.3 million renters under 44, and 830,000 of those wanted to buy in the last 12 months. But of those who didn’t, which was sadly the majority, 600,000, 350,000 of them couldn’t save the deposit. So you’ve really hit the nose on what is a fundamental challenge for first-time buyers accessing the housing market. I think what’s really good in the broader market is we are last seeing, um, over the past couple of years of greater availability of 95% LTV mortgages, we’ve still seen that availability stay constant. A generation home, we offer that as well. But I think probably more crucially, and more importantly, than that is for a number of people, they are lucky enough to be able to get support from the bank of mum and dad. In fact, our numbers suggest between 15% and 60% of first-time buyers are able to access that in some form, so we’ve created a product called the ‘deposit booster’ where we are able to take that deposit, that support, from the parents or family, but protect it in a way that it gives as a lender our security. So, we know we can lend and we have our security in place, but equally, it means that should something go wrong further down the line, if there’s a split or a divorce, and sadly these things do happen, it means that the deposit that the friend or the family has given is protected and saved within our equity, within our charge. So that is a brilliant way of being able to really buy a bigger house and get on the housing market quicker by accessing the support of friends and family.

CELINA:

Fabulous. Absolutely. So, in terms of that deposit booster that you are offering, if someone has initially helped you to buy your home and their deposit is there, it’s being protected, can you eventually buy out that person when you have the means to do so?

PETE

Of course, at any point, just let us know. You can do it digitally. You do it online, and you don’t need to buy it all out and go. You can pay a little bit off. You can pay a lot off, or you can pay all of it. And it’s done digitally online, safely and securely.

CELINA:

Perfect. So, I mean in terms of, we talked about the bank of mum and dad, which a lot of people don’t know, if it was a real bank, it would actually be the UK’s 10th largest lender, because there is a lot of help coming from family members. But some first-time buyers aren’t in a lucky position where they can’t get financial assistance from a family member. What about if it was to come from a third party? Is that something that Generation Home can assist with?

PETE:

Of course. With the deposit booster, we really can. We can really grow that circle of people who can help considerably because, because we are able to take that deposit and put it, wrap it up into our mortgage charge, it’s there, it’s safe, it’s secure, and it’s ring fenced. So actually, should circumstances change further down the line for the borrower or for the booster, it’s there, legally robust and safe and secure way. So there’s no risk of, well, there’s a far reduced risk of that, of the person helping them out sort of paying the penalty off later on their generosity.

CELINA:

Brilliant. So, it was really a versatile way of getting a deposit from someone who’s able to help you.

PETE

Exactly. And actually, I would like to make the point that what we find is whilst the typical deposit, when you don’t have a deposit booster, is about £12,000. When people know, and they are confident that their money that they’re providing are safe, they typically double that. So we find with our deposit boosters that they are helping out to achieve £23,000 towards the deposit beyond the £12,000. Now that potentially all else being equal doubles the size of the property.

CELINA:

Huge jump. Absolutely.

PETE:

It really means you can get your dream property that much quicker.

CELINA:

Brilliant. Perfect. And in terms of this kind of deposit booster as well, if that person has helped you to get onto the property, and maybe they set that up as a loan, so they’re going to give you that loan for you to purchase the property. Do you take into consideration the repayments of that loan back to the person that’s helped you with the deposit booster?

PETE:

No, we don’t need to because, helpfully, the way we structured it is, like you rightly say we will accept it as a loan, but it’s set up as an equity loan, so there’s no interest payable, there are no monthly payments associated with that loan, but it’s simply that if I put a £10,000 deposit on a £100,000 property, I can take that as a 10% equity loan. So, if the property goes to £200,000 (value), that simply becomes £20,000 as the equity grows. But crucially, it’s repayable when the property is sold or remortgaged. So, you don’t need to consider it as part of the monthly affordability.

CELINA:

It’s something that would be repaid as a lump sum.

PETE:

Repaid as a lump sum. Clearly, as I said before though if your circumstances improve and you wish to sort of start buying out your deposit booster, very straightforward, you can do that whenever you want to, digitally online.

CELINA:

Fabulous. Perfect. So, I mean, there’s a lot of young professionals out there as well who are looking to purchase their first home and they do have a starting salary within their new jobs, but there is a very clear trajectory of what their salary will increase to after maybe certain exams have been taken or after they spend a certain amount of time within that company. So how does Generation Home take a view on that for people who are going to be getting higher income in the future?

PETE:

I think some really, really important points and one of the things I’ve seen doing lending over the years is that actually getting the demographic understanding of the customer is actually more important than the credit score. We certainly saw that over the global financial crisis, and we’ve seen it over the recent stresses as well. So there are two dimensions to it in terms of how we can help. The first of all is from an underwriting perspective, we all do this. I’d like to think most lenders would, but we certainly do is that where we can see that there’s a stable growing income trajectory, we are legally required to use the income they have today, but we can be lenient in other respects, and we’ll try. So for those margin affordability cases, we can work that much harder to make that case fit because we have confidence that this is someone who’s going to be earning more in the future. I think, more crucially, is when you think about the role of income boosters. So these people will be paying a rent, say £600 a month, let’s just say that most lenders are assessing affordability at £800, but the actual mortgage is probably going to be £400.

CELINA:

Much less.

PETE:

Much, much less. Yeah, so the role of the income booster is bridging that gap. So if they can find someone, a family member who can be on standby should that in the very unlikely event, they’re going to have to pay £800 a month, then the income booster will bridge that gap, help them get onto the ladder, and then as their income grows and they can afford their mortgage in their own rights, then clearly the income booster can stand back and let the first-time buyer, let the young professional, have the mortgage on their own two feet.

CELINA:

Absolutely.

PETE:

So the income booster product bridges that gap of affordability until they’re, earning

CELINA:

Until they can then support that mortgage on their own.

PETE:

Exactly.

CELINA:

Sure. So I mean, there are a lot of lenders at the moment who offer, say, joint mortgage sole proprietor, where you’ve got two people on the mortgage, but making only one person on the deed of the property. But a lot of these lenders, they are using the income of an additional person on the mortgage and they will base that mortgage off the eldest applicant’s age as opposed to maybe the person who is actually going to be caretaking that mortgage. So do you use that that similar assessment where you are looking at the eldest person or is it based on the main mortgagee, the person who’s buying that property?

PETE:

The reason why you have to do that is you need to consider the affordability for all involved. And like most lenders, we have a maximum age of 85. However, we do something genuinely, if I may say to myself, quite clever in that we have something we call an ejector seat. So, what we do is we figure out you as the first-time buyer; obviously, over time, you are paying down your mortgage, and therefore, your balance reduces. So we figure out at what point you could afford the mortgage, the new mortgage balance within your own income, and set that, let’s say, you could afford a mortgage of £80,000 by yourself, but you need the booster to afford the £100,000 you initially need. We figure out when the mortgage balance goes down to £80,000, and at that point, we for the purposes of the lending assessment, would remove the booster. So, therefore the fact that the booster may be in 85, it goes away because they’re no longer the mortgagee. So basically, we can offer a much longer term by using this ejector seat.

CELINA:

Fabulous. That’s a very different way of looking at it than most lenders offer.

PETE:

It’s unique, I believe so. It, it’s really quite smart. Although I would say that!

CELINA:

Absolutely – So I mean in terms of when you’re getting help from family members or you are getting help from someone who’s maybe giving you that loan, that equity share in your property to help you with that deposit. I know you have this dynamic ownership. So, if you are looking to maybe purchase a property with a friend or a partner, but you are looking to maybe structure the property based on maybe someone’s higher income or maybe someone’s got more deposit to put in. How do you look at that exactly?

PETE:

This dynamic ownership really is, I think, the most standout, unique element of the Generation Home proposition because what we are able to do is track every payment to create what we call an equity ledger. So, we start off with your deposit, we look at who has put money into the deposit to buy the property, and that gives us a starting point on the equity ledger. Then let’s say three people are buying, two first-time buyers and a booster. We take monthly payments from each of them, a direct debit from each of them, and we are able to track exactly how much of that is paying off the mortgage principle and, therefore, how much equity that person is individually accruing in their property. So every pound that goes into the mortgage, be it a deposit or a monthly mortgage payment, is then tracked in our equity ledger. So, we can say exactly what your share of the equity is, and that will vary over time, and it’s quite flexible. So, if you did want to then gift some of that equity or transfer it across to one of your other mortgagors, that’s perfectly fine, you can do it, and we are able to see exactly what your share is of the mortgage. I think is A) pretty unique, and B) is such an important thing should things go wrong further down the line. If, you know, couples split up, or they want to sell, you’ve suddenly got that clarity, they know exactly who owns what, which too often is not present. So, it makes life a lot easier in terms of future-proofing people’s financial position.

CELINA:

Absolutely. And I mean, in terms of kind of the dynamic ownership, obviously, people are going to pay maybe different amounts per month or different amounts initially. Is there a way for them to track how much they’ve got on the property?

PETE:

We do. So initially, if you put in £100 in and your partner puts in £200, we are able to say what percentage of the repayment is that £100/£200. We track it. You can see the role of every mortgage payment you’ve made in terms of creating that level of equity. It’s all securely wrapped up into our charge, so it’s protected, and it can’t be accessed unofficially. It’s in a very safe and sort of legally defined place.

CELINA:

Absolutely. And in terms of maybe buying back more share, so maybe someone’s had a bonus from work, and they’d like to make a larger overpayment to sort of buy more of a percentage in that property. Are they limited to how much they can buy? Because they’ve got other people as dynamic owners as well, or is it very flexible?

PETE:

No, it’s very flexible. Simply you’ve made the overpayment, and then your share will increase. If you decided you wanted to move some of that allocation across to your co-owners, you have the flexibility to do that, or equally, it remains yours.

CELINA:

Excellent – and I mean because you’ve got three people on the mortgage, they might not necessarily be your partner, they might be a friend or a family member, and you are all making a structured repayment, which you maybe previously agreed. If one person was to miss their monthly repayment, would that have an impact on the other people in that dynamic ownership? So would that affect their credit score? Cause someone has missed it?

PETE:

It could do. Ultimately most- in fact all- mortgages, to my knowledge, are joint in several in the sense all the parties are equally accountable for the mortgage. And the reason for that is actually quite simple. As a lender, we have security, and if the payments aren’t made, we need to be able to enforce the security, and that will affect all of the people who are on the mortgage equally. So it would do, but what we do is we have a number of provisions to allow people to make good choices and buy out shares of people who aren’t performing because, clearly, it’s not very fair if two people are making a mortgage payment and the third person isn’t, we put a provision in that so you can then buy that person out, and thus protect your credit score if that’s a risk. The other important bit, and we stress this, and in fact, it’s mandatory, is that we do insist on people taking independent legal advice for that reason. As you said, there are consequences if one party doesn’t pay, which will affect your credit score. It’s important you understand the consequences of that.

CELINA:

So independent legal advice, very important is very necessary for this type of ownership.

PETE:

It is. Sure.

CELINA:

Absolutely. So, just move on to maybe mortgage affordability as well. A lot of lenders on the market they’ll offer anything between four times or five, or even 5.5 or sometimes even six times your income in order to assess the mortgage affordability. So, do you offer the same affordability criteria?

PETE:

When it comes to offering a boring conventional mortgage, yes, we certainly do. We do four and a half times, and we will go to five and a half times, although, as you’d expect, when there’s more of a stretch, we sort of make sure it’s only to the people whom we are most convinced will have the ability to afford that extra stretch. But really, in some respects, because of the income boosters, it’s less relevant because, actually, the income boosters give you so much more buying power. Actually, the LTI becomes immaterial for the lending, we are able to offer, you know, the generosity and the contribution of a typical income booster, means that seven or eight times your salary becomes very doable. But clearly, the overall position is very low risk because of the role of the income booster.

CELINA:

Absolutely. So, there are lots of different ways that you’ll look at the affordability based on whether it’s just yourself buying a loan or with a friend or a family member. There are very different ways to assess that.

PETE:

Correct. Exactly.

CELINA:

Absolutely. So, there’s really an amazing proposition here by Generation Home. You know, there’s so much out there they can potentially assist you with that maybe other lenders haven’t done yet. So, I’d like to give a big thanks to Pete for joining me today to talk through everything. It’s been really illuminating to understand what you are doing here at Generation Home. So thank you so much.

PETE:

Thank you very much. Really kind and really welcome the opportunity.

CELINA:

Lovely. So this proposition is here for everyone to use if you do want to speak to one of our brokers about potentially what Generation Home can do for you, please do get yourself booked in at your company’s website to book a meeting with an advisor to discuss this further. And also, in the text of this podcast as well, there are some links to some really great visual explainer videos from Generation Home to give a really good understanding of what they do. So again, thank you very much Pete, and thank you to everyone for listening. I hope this was useful, and we will see you next time. Thanks a lot. Bye-bye.

Click below to learn more:
https://www.generationhome.com/how-it-works

https://www.generationhome.com/income-booster

https://www.generationhome.com/deposit-booster

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