10 key points about bank of mum and dad for home buying

New research reveals the precise relationship between the likelihood of owning property if you have wealthy enough parents.

Parents are playing a huge role in getting their children onto the property ladder.

But what is the precise relationship between having wealthy-enough parents and buying a house?

New research from think-tank the Resolution Foundation lays bare the precise statistical relationship between the likelihood of owning one's own home and one's parents. 

Perhaps the results are as you would expect, but the details in some cases reveal a worrying picture about social mobility in a world where rising levels of indebtedness and social inequality remain a concern to economists and policymakers alike. 

Click on to read the key conclusions. 

Parents are playing a huge role in getting their children onto the property ladder.

But what is the precise relationship between having wealthy-enough parents and buying a house?

New research from think-tank the Resolution Foundation lays bare the precise statistical relationship between the likelihood of owning one's own home and one's parents. 

Perhaps the results are as you would expect, but the details in some cases reveal a worrying picture about social mobility in a world where rising levels of indebtedness and social inequality remain a concern to economists and policymakers alike. 

Click on to read the key conclusions. 

Conclusion:

You will be saving for a long time if you do not get help from your parents on the deposit

What the report said:

'Hypothetically, we estimate it would currently take a 27-to-30 year-old first-time buyer around 18 years to save for a deposit if they relied solely on savings from their own disposable income. All this has focused attention on the degree to which parental wealth affects the housing market: how important is the bank of mum and dad in driving home ownership among the young?'

Conclusion:

It is harder than you might think to measure the impact of the bank of mum and dad

What the report said:

'It is difficult to directly observe the bank of mum and dad. A range of public and private surveys ask people if they have provided support to a relative or friend. However, these surveys do not collect data on givers and receivers and they do not track people over time so we can compare how moves into home ownership differ for those benefitting from the bank of mum and dad versus people without such support.

'This is because there is no readily available UK dataset that directly links adults and their parents, unless they happen to be living in the same household.'

Conclusion:

But, there is a way of merging data sets on this issue...

What the report said:

'By exploiting the long time-series of the British Household Panel Survey (BHPS) and its successor, Understanding Society (USoc) we have created [a data set]. This is done by taking advantage of the fact that the BHPS and USoc track young adults who originally joined the sample via their parents’ household.

'As we are interested in the purchasing of someone’s first home, we drop people from our sample once they become homeowners. After doing this we are able to link around 4,500 children and parents in the BHPS and a further 8,000 in USoc.'

Conclusion:

It is easier now for parents to distribute their wealth.

What the report said:

'Even if we didn’t think that someone’s property wealth is a good proxy for their other forms of wealth, it is worth noting it is becoming easier for parents to make use of their property wealth to support their children. Lenders are increasingly developing products to enable parents to leverage their property wealth either to help with the deposit or reduce the interest paid on a loan.

'Industry analysis indicates 59% of building societies will accept funds from family members or friends as a deposit, 33% allow using the property of family members as collateral to reduce interest payments and 10% offer family offset mortgages.'

Conclusion:

At the age of 30 those without parental property wealth are approximately 60 per cent less likely to be homeowners.

What the report said:

'Home ownership, earnings and wealth are deeply intertwined. Those with wealthier parents are more likely to become homeowners themselves, but they are also more likely to attend university and earn more.

'Because all these things are also closely related to the likelihood that someone is able to purchase their first home, the bank of mum and dad, it seems, pays out more than once in life.'

Conclusion:

The amount of property wealth your parents have increases the chances you yourself will become a homeowner.

What the report said:

'Moving from the median amount of property wealth up to the 75th percentile increases the probability that someone’s children will, in a given year, become a homeowner by over 11%. Moving down to the 25th percentile reduces the probability by approximately 7%.'

Conclusion:

The 'bank of mum and dad' has had an increasing impact over time. 

What the report said:

'In the 1990s and early 2000s, 30 year-olds with parental property wealth were approximately twice as likely to be homeowners as those without. From the mid-2000s we estimate that those with parental property wealth were almost three times as likely to be homeowners.

'We find this effect continues to hold even once we take people’s earnings into account.'

Conclusion: 

You are more likely to have an expensive house if you have wealthy parents.

What the report said:

'Our most complete model (6) shows that, even controlling for a range of possible confounders (region, pay, sex, education, partnership status), the effect of parental wealth on child property wealth is still strong.

'A 10 per cent increase in parental wealth is associated with a 1.1 per cent increase in the property wealth of children.'

Conclusion:

Parental input is more important than it used to be.

What the report said:

'[We tested] if the effect of parental property wealth has increased over time.
We compared the rate at which people (those with parental property wealth and those without) became homeowners in two periods: 1991 to 2003 and 2004 to 2017.

It is noticeable that in the earlier period the proportion of people who became homeowners was far greater. Approximately 40% of people in our sample whose parents were homeowners had become homeowners themselves by the time they were 30. In the later period this figure falls to 25 per cent. The equivalent figures for those without parental property wealth are 19 per cent and nine per cent.

Conclusion:

Help to buy: nice idea, but must try harder.

What the report said:

'Unfortunately the most recent evaluation indicates that half of help-to-buy users could have bought a property without the scheme, suggesting it could be better targeted.

'Help to buy should be restricted to those that have an annual household income of less than £60,000 per year (currently a quarter of HTB recipients have incomes above this). This would partly address the fact that those with higher incomes need less support.'

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