Financial institutions have found parents are increasingly helping their offspring take that first step on to the property ladder, but the new product from EBS has come in for much criticism, writes Siobhán Creaton, Finance Correspondent.

THE EBS building society has caused great offence through the marketing campaign it is using to promote its latest mortgage product, judging by the public reaction it has provoked . Its Familyfirst mortgage offers young adults the most blatant means yet of extracting cash from their parents towards the cost of a new home and the institution has been accused of using moral pressure to win new business.

All financial institutions have found that parents have been dipping into their savings or topping up their own mortgages, particularly over the past five years, to find some extra money for children trying to buy a home. This has led to the development of a plethora of new products designed to help home owners to realise some of the equity in their property without selling their home.

Last year, Bank of Ireland and Permanent TSB introduced products allowing customers to top-up their mortgage by either taking out an additional loan or simply writing a cheque against the value of their home. Both banks say these type of loans are very popular and tend to be used for a wide range of purposes, such as home improvements, but acknowledge that a proportion have been used by parents to pass on money to their children.

The EBS is making no bones about the purpose of its Familyfirst product and, as such, has handed children a concrete proposal they can bring to their parents when seeking financial assistance.

Mr Pat Farrell, head of marketing at the EBS, has defended the product saying it offers a solution to a very great social need. "It allows first-time buyers to get a loan in the conventional way and allows the parent to use their assets to provide a deposit. It is better than the alternative of the parents re-mortgaging their home to help their children or handing over their savings."

Mr Farrell said the society has had a large response since the home loan was launched on Monday and a number of applications are being considered.

Rival institutions and mortgage brokers have criticised the product and warned that it could prove quite expensive.

Ms Sarah Wellband, associate director at Rea Mortgage Services, which acts as a broker and advisory service for individuals taking out mortgages, believes the product is not very ethical or moral. "Parents have been helping out financially without this type of emotional pressure. This product has just given children more pester power in terms of seeking money from their parents. It becomes particularly problematic where there are three or more children in a family with expectations that the parents would have to make similar commitments for each of them."

The controversial package allows parents to borrow large amounts of money against the value of their home. There is an option where parents can decide not to make any repayments on that loan for the first three years, by which time it is envisaged that their children will be in a financial position to start paying back the loan.

If a parent wants to defer loan repayments for three years, the EBS will lend a maximum of €30,000. Should they decide to make monthly repayments from the start, the upper limit will be determined against the value of their home. The loans are offered at an interest rate of 3.4 per cent to 3.6 per cent for the first year and rising to the variable rate of interest, currently 4.1 per cent, thereafter.

The EBS is applying more stringent criteria than exists with other products by insisting that both mortgages must be advanced by the building society. This could mean that a parent might have to move their mortgage from another bank and ties both parties into the interest rates and services offered by the EBS.

Mr Farrell says it is targeting people in their mid-50s and will not advance loans to home owners over 70 years old. Ironically, the parents they are targeting will remember a very different time when they were trying to finance their first home. Thirty years ago financial institutions were far less welcoming and imposed very stringent and expensive terms on mortgages.