The massive scale of parental support for young people seeking to buy their first property has been revealed in a UK study showing one in four new homebuyers under 25 rely on the “mum and dad bank”.
A blogpost by a Bank of England economist found that even before the sharp increase in house prices during the Covid-19 pandemic, the children of better-off parents were able to become owner occupiers four years earlier than those without parental support.
The study, which looked at mortgages issued between 2015 and 2017, said that of every 100 homeowners under the age of 30, 16 would have received help from the bank of mum and dad (Bomad), rising to one in four for those under 25.
“Those who have had help from their parents put down a deposit twice as large, bought bigger first homes, and had smaller mortgage payments than those who didn’t,” wrote May Rostom on the Bank Underground site.
The importance of financial support from parents has grown in recent years as members of the baby boomer generation have recycled some of the gains. Adjusted for inflation, the average house price has increased from about £100,000 to £275,000 since the mid-1970s, making it harder for those without wealthy parents to raise deposits and meet monthly mortgage payments.
Rostom said the scale of the support was substantial. “On average, deposits are two and a half times larger, loans are 30% smaller, and houses cost £15,000 more for those getting help, compared with those who are not. This means ‘Bomad borrowers’ are typically less leveraged and have lower mortgage payments, leaving more leeway for them to save or spend their incomes on other things.
The study found those with parental help bought more expensive homes. The average 26-year-old with help paid about £254,000 for their first home. Those with no help waited a decade – until they were 37 – to buy a property for an equivalent sum.
Rostom said she had estimated the cumulative savings each borrower could have amassed from earnings alone since entering the workforce, and compared that with the size of their down payment. If it is greater than their estimated savings, I assume they got help. Otherwise, I assume they did not.”
She said her research demonstrated “that whether and when you receive a gift can affect your entire home ownership trajectory – exacerbating the differences not just across generations, but within them”.
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