What happens when the bank of mum and dad runs dry?

International banking institutions may be pulling out of the Irish market at a disquieting rate, but there is one that seems to have put down permanent roots.

It operates without much by way of regulation, a board or marketing budget. But it is a significant and growing force in Irish lending nonetheless.

In the first half of this year, four in every 10 first-time buyers were given money by their parents to help them to fund their deposit. Recent figures from the Banking and Payments Federation of Ireland (BPFI) reveal that the total value of gifts towards deposits in that period was €210 million. Nearly €150 million went to first-time buyers, and €60.4 million to those who are trading up.

A property market which requires substantial cash investment from two generations of the same family is an unsustainable one

The bank of mum and dad – an irksomely cutesy phrase that belies the stark reality of the inequity it fuels, as well as the pressure it puts on many families – is not a new phenomenon. But these figures reveal the extent to which it is keeping house prices rising.

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One in four of those moving to a bigger house also relied on family gifts. The median deposit paid by first time buyers was €52,100, while the amount for trader-uppers was €135,000.

In many ways, there is nothing wrong with this: most parents would like to be able to help their children financially if they can. But it has never been so normalised or so necessary.

One person I spoke to recently whose home was on the market for about €700,000 was surprised at the number of thirty-something couples who came to view it. He suspected there were a lot of parental savings washing around those open houses. Good on them is, arguably, the most appropriate response here.

Unsustainable

However, a property market which requires substantial cash investment from two generations of the same family – occasionally three, because grandparents are being called on as well – as well as an enormous mortgage, is an unsustainable one.

Nobody ever talks about the strain these expectations must be putting on all but the best off. Yes, the pandemic boosted household savings, but the 42 per cent of first time buyers getting help with their deposit must include some whose parents can’t readily afford it.

Still, they find the money somewhere, digging into their retirement funds or releasing equity in their own homes. Alternatively – sometimes additionally – they provide rent-free accommodation to adult children saving for a deposit. There are an estimated 350,000 adults still living at home with their parents. They’re known as the “stuck at homes”, but there’s no such sympathetic moniker for their parents.

For those paying 30 per cent of their income on rent while struggling to save for a deposit, with no reserves of parental wealth to tap into, the outlook is very bleak

Radio vox pops on the subject during the week were full of the terse language of love and obligation. But you can love your adult children and still have had other plans for your savings.

Inter-generational wealth transfers are no longer happening only between those who have large amounts of actual wealth to transfer. If they’re not providing money or shelter, parents are sometimes stumping up in the form of free childcare.

It’s hard to gauge people’s true feelings about this for obvious reasons but, human nature being what it is, not all of these arrangements can be resentment-free. The disquiet of the older generation may be manifesting in other ways: this week’s IPSOS/MRBI poll by the Irish Times found that Sinn Féin is now the party of middle class Ireland, attracting support from 31 per cent of the over 35s, and 27 per cent of middle class voters. In this context, the Government was wise to back off from a recent plan to tax family loans.

The parents of today’s emerging adults didn’t know they were signing up for still being financially responsible for their offspring well into their 20s and 30s, especially as changing demographics means they also need to plan to fund their own lifestyles for longer. Nor, of course, did those who probably don’t relish having to ask their parents for help. Still, these are the lucky ones.

This trend is accelerating inequity and widening the gap between the housing haves and the housing haven't-a-snowballs-chance-in-hells. BPFI chief executive Brian Hayes suggested that rising house prices are leading to bigger amounts needed for deposits.

The reverse is also true: handouts from parents are keeping prices artificially high. Now, your chance of getting on the housing ladder isn’t determined only by your job prospects, earning potential or savings, but by some formula that takes into account factors including your own financial situation, your parents’ ability and willingness to help you – minus the number of children and, possibly, siblings you have.

In New Zealand, where upwards of 60 per cent of first-time buyers are estimated to need parental help, economist Shamubeel Eaqub has referred to "the return of the landed gentry", a provocative and perhaps unfair phrase.

Overtaking lane

Many buyers getting cash help from their parents may intend to repay it. Still, it is true that if you’re born into a privately owned home, you’re already in the overtaking lane.

For those paying 30 per cent of their income on rent – as half of tenants are – while struggling to save for a deposit, with no reserves of parental wealth to tap into, the outlook is very bleak.

None of this is fair or sustainable. What happens when the offspring of my generation – those who bought a house in the mid-2000s and are crawling back out of negative equity just in time to confront the challenge of paying for student accommodation on top of colossal mortgages – come of age? The familial credit lines may just run dry.

Every conversation about the housing market eventually comes around to the same conclusion. In order for some degree of fairness to return, supply will have to rise and house prices will have to fall. And where will the bank of mum and dad be left then?